Question

Calculate current ratio and quick ratio from the following information
Inventory 50,000 trade receivable 50,000 advance tax 4000 cash and cash equivalents 30,000 trade payable 100000 short-term borrowings 4000

Answer 1

Answer:

Current Ratio= 1.29:1 and Quick Ratio = 0.77:1

Explanation:

1. Current Ratio =Current Assets/Current Liabilities

Current Assets = Inventories + Trade receivables + Advance tax + Cash and cash equivalents

=Rs. 50,000 + Rs. 50,000 + Rs. 4,000 + Rs. 30,000 = Rs. 1,34,000

Current Liabilities = Trade payable + Short-term borrowings

= Rs. 1,00,000 + Rs. 4,000 = Rs. 1,04,000

Current Ratio =Rs.1,34,000/ Rs.1,04,000

= 1.29 :1

2. Quick Ratio = Quick Assets/Current Liabilities

Quick Assets = Current assets – (Inventories + Advance tax)= Rs. 1,34,000 – (Rs. 50,000 + Rs. 4,000)

=Rs. 80,000

Current Liabilities = Rs. 1,04,000

Quick Ratio = Rs. 80,000/ Rs. 1,04,000

= 0.77 :1