Blog: ACC501 Assignment01 Question no. 3 and 1

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Q No 03:-
Answer:-
As we know that
Debt Equity Ratio = Total Debt/ Total Equity
Debt-Equity ratio before loan:
a) Total Debt Ratio = Total Assets- Total equity / Total Assets
= 3540 – 2320 / 3540
= 0.344%
100% - 34.4% = 65.6%
Total Debts = 34.4%
Total equity = 65.6%
Debt-equity ratio = Total Debts / Total Equity
= 34.4% / 65.6%
= 0.524 time
Debt-Equity ratio after loan:
b) Total Debt ratio = total Assets - total equity / total Assets
= (3540+51) – (2320+51) / (3540+51) 3591-2371/3591
= 3591 – 2371 / 3591
= 1220 / 3591
= 0.339 times
100% - 33.9% = 66.1%
Total Debts = 33.9%
Total equity = 66.1%
Debt-equity ratio = total debts / total equity
= 33.9% / 66.1%
= 0.512 times

Q No 01:-
Answer:-
As we know that
Current Ratio = Current Assets/Current Liabilities
a) Before Credit Sale
Current Assets = 560 millions Current Liabilities = 675 millions
Current Ratio = Current Assets/Current Liabilities
= 560/675
= 0.830
b) After Credit Sale
Current Assets will increase by 9 million as accounts receivable will be increased due to mark up so
Current Assets = 569 million Current Liabilities = 675 million
Current Ratio = Current Assets/Current Liabilities
= 569/675
= 0.843



Solution 4;
As debt to equity ratio will increase certainly it put a negative effect on any financial institute whome ABC is applying for further loan. Moreover the or current ration is also not satisfactory.
But ABC Company also have positive points
Study case showing electronics market are highly relying on debt and 60:40 is common ratio. So it means Banks are satisfy on this ratio to issue loan and ABC currently have 55:45 ratio means still have a margin of 5%.
Secondly they have a bright prospective as their share is increasing in stock market and they have 20Milion project of A & Company

Current Ratio
A firm wants to payoff some of its suppliers and creditors. What would happen to current ratio?
•Current ratio moves away from 1. if it is greater than 1 it will get bigger. But if it is less than 1, it will get
smaller.
•Suppose a firm has $4 in current assets and $2 in current liabilities for a current ratio of 2. and uses $1 in
cash to reduce current liabilities, then new current ratio is ($4-1) / ($2-1) = 3
•Reversing the situation to $2 in current assets and $4 in current liabilities, the change will cause current
ratio to fall to 1/3 from 1/2
                         
                               Current Assets
Current Ratio=   ------------------------
                              Current Liabilities
                                   Total Assets – Total Equity
Total Debt Ratio=     ------------------------------------
                                           Total Assets
Debt-equity ratio
Debt–Equity ratio = Total Debt / Total Equity