Compute Debt-equity ratio, current ratio for both companies

07 Feb

Financial Accounting & Analysis

1. Analyse the following transactions for Surprise Ltd. using the concept of Accounting Equation comprising of Assets, Liabilities and Equity.

1. Commenced business with cash of ₹ 5,00,000.

2. Purchased equipment for cash ₹ 2,00,000.

3. Purchased furniture worth ₹50,000 on credit from IndiMart.

4. Purchased raw materials for ₹25,000 against cash from XYZ Suppliers.

5. Deposited cash of ₹ 1,25,000 in the current account.

6. Sold goods for ₹75,000 and received a cheque against the same.

2. Cash flow statement complements the income statement and the balance sheet summarizing all cash inflows and outflow transactions in the company within the given financial year. However, there are two different methods of preparing the cash flow statement – direct and indirect.

Enlist the differences between Direct and Indirect method of cash flow statement.

3. Following information is available for Companies Ace Ltd. and Pace Ltd.: (₹ in lacs)

Particulars Ace Ltd. Pace Ltd.
Long term Debt 625 700
Equity 2100 2850
Current assets 450 550
Current liabilities 300 375
Net Profit 115 178
Revenue (net) 355 452

a. Compute Debt-equity ratio, current ratio for both companies.

b. If face value of equity shares of both companies ₹10 each, calculate the Earnings per share ratio for both companies, advising which company is recommended for investment.

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