Question

A Company's Current Ratio is 2.4 : 1 and Working Capital is 5,60,000. If its Liquid Ratio is 1.5, what will be the value of Inventory?​

Answer 1

Answer:

The Value of Inventory will be 3,60,000.

Explanation:

Solution :

★ Current Ratio =

$\dfrac{Current \: Assets}{Current \: Liabilities} \: = \: \dfrac{2.4}{1}$

Let,

Current Liabilities = x

Current Assets = 2.4x

• Working Capital is 5,60,000.

Working Capital = Current Assets -

Current Liabilities

⇒ 5,60,000 = 2.4x - x

⇒ 5,60,000 = 1.4x

⇒ x = 5,60,000 / 1.4

⇒ x = 4,00,000

Current Liabilities = 4,00,000

Current Assets = 2.4x

⇒ 2.4 × 4,00,000

⇒ 9,60,000

Current Assets = 9,60,000

Liquid Ratio is 1.5

★ Liquid Ratio =

$\dfrac{Liquid \: Assets}{Current \: Liabilities} \: = \: 1.5$

Current Liabilities = 4,00,000

$\dfrac{Liquid \: Assets}{4,00,000} \: = \: 1.5$

Liquid Assets = 1.5 × 4,00,000

Liquid Assets = 6,00,000

★ Inventory :

Inventory = Current Assets - Liquid Assets

Inventory = 9,60,000 - 6,00,000

Inventory = 3,60,000

Therefore, the Value of Inventory will be 3,60,000.

Answer 2

Explanation:

Company's Current Ratio is 2.4 : 1

So,

Current Ratio = CA /CL

Assume, Current Liabilities be x

Current Assets = 2.4

Working Capital = 5,60,000

=> 2.4x - x = 5,60,000

=> 1.4x = 5,60,000

=> x = 5,60,000/1.4

=> x = 4,00,000

Current Liabilities = 4,00,000

Current Assets = 2.4×4,00,000

Current Assets = 9,60,000

Liquid Ratio = Current Assets - Inventory/Current Liabilities

Liquid Ratio = 1.5

Current Liabilities = 4,00,000

Liquid Assets = 4,00,000 ×1.5

Liquid Assets =6,00,000

Liquid Assets = Current Assets - Inventory

6,00,000 = 9,60,000 - Inventory

Inventory = 9,60,000 - 6,00,000

Inventory = 3,60,000

Hence, Inventory =3,60,000