|10% Preference Share Capital||5,00,000||Current Assets||12,00,000|
|Equity Share Capital||15,00,000||Current Liabilities||8,00,000|
|Securities Premium Reserve||1,00,000||Investments (in other companies)||2,00,000|
|Reserves and Surplus||4,00,000||Fixed Assets-Cost||60,00,000|
|Long-term Loan from IDBI @ 9%||30,00,000||Depreciation Written off||14,00,000|
Calculate ratios indicating the Long-term and the Short-term financial position of the company.
(i) Debt-Equity Ratio is an indicator of Long-term financial health. It shows the proportion of Long-term loan in comparison of shareholders’ Funds.
Debt-Equity Ratio = Long Term Debts / Equity
Debt = Loan from IDBI @ 9% = 30,00,000
Equity = 10% Preference Share Capital + Equity Share Capital +
= Reserves & Surplus
= 5,00,000 + 15,00,000 + 4,00,000
Debt-Equity Ratio = 30,00,000 / 24,00,000
= 1.25: 1
(ii) Current Ratio is an indicator of short-term financial portion. It shows the proportion of Current Assets in comparison of Current Liabilities.
Current Assets = 12,00,000
Current Liabilities = 8,00,000
Current Ratio = Current Assets / Current Liabilities
Current Ratio = 12,00,000 / 8,00,000
= 1.5: 1
Note: In the above question, Securities Premium Reserve is not considered while computing Equity because it is already included in the amount of Reserves and Surplus.