Question

Cash Balance Rs. 5,000, Trade payables Rs. 40,000, Inventory Rs. 50,000, Trade Receivables Rs. 65,000 and Prepaid Expenses are Rs. 10,000. Liquid Ratio will be​

Answer 1

Answer:

Liquid Ratio also called Quick Ratio or Acid Test Ratio= Liquid Assets / Current Liabilities

=70000/40000

=1.75:1

optimum liquidity ratio=1:1

THE FIRMS liquidity ratio is favourable

Explanation:

Current liabilities are those liabilities which are payable within 12 months or within operating cycle

Current liabilities= Trade Payables= Rs 40,000

Liquid Assets are also called Quick assets. Tgey can be easily realized into cash in short span of time.They include all Current assets except Prepaid Expenses and Closing Stock

Here Liquid Assets= Cash Balance+ trade receivables=5000+65000=70,000