Question

Assuming the quick ratio is 0.6 : 1, which of the following will result in increase in the quick ratio​

Answer 1

Answer:

Let Quick Assets = Rs.80000 and Current Liabilities = Rs.100000

Quick Ratio = Quick assets/Current liabilities

                     = 80000/100000

                      = 0.8:1

Now,

(i) When Rs.50000 cash is collected from debtors there would be no net increase or decrease in the quick assets as the cash balance would increase and the debtors balance would decrease simultaneously. And so the Quick ratio would not change.

(ii) When creditors of Rs.20000 are paid off then there would be decrease in both the creditors balance and the cash balance. The revised Quick ratio = [80000−20000]/[100000−20000]

                   = 0.75:1

And so quick ratio would decline in this scenario.