Question

Following information is available for a Concern :
Current Ratio 3.5, Liquid Ratio 2.5, Working Capital Rs. 1,00,000. Find the value of :
(a) Current Assets. (b) Current Liabilities.
(c) Value of Inventory.

Answer 1

Explanation:

Current Ratio = Current Assets / Current Liabilities

3.5 = Current Assets / Current Liabilities

suppose,

Current Liabilities= y

Current Assets = 3.5y

Working Capital Rs. 1,00,000.

1,00,000 = 3.5y - y

1,00,000 = 2.5y

y = 1,00,000 / 2.5

y = 40,000

Current Liabilities= 40,000

Current Assets = 3.5y

Current Assets =3.5 × 40,000

Current Assets = 1,40,000

Value of Inventory -

Liquid Ratio =2.5

Liquid Ratio = Liquid Assets/Current Liabilities

2.5 = Liquid Assets/Current Liabilities

Current Liabilities= 40,000

Liquid Assets = ,2.5 × 40,000

Liquid Assets = 1,00,000

Inventory = CA - QA

Inventory = 1,40,000 - 1,00,000

Inventory = 40,000

Hence,

(a) Current Assets = Rs 1,40,000

(b) Current Liabilities= Rs 40,000

(c) Inventory =Rs 40,000

Answer 2

ANSWER :

• ❖ If Current Ratio is 3.5, Liquid Ratio is 2.5 and Working Capital is Rs. 1,00,000; then the value of : (a) Current Assets is Rs. 1,40,000; (b) Current Liabilities is Rs. 40,000 and (c) Inventory is Rs. 40,000.

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SOLUTION :

❒ Given :-

• Current Ratio = 3.5

• Liquid Ratio = 2.5

• Working Capital = Rs. 1,00,000

❒ To Find :-

• (a) Value of Current Assets = ?

• (b) Value of Current Liabilities = ?

• (c) Value of Inventory = ?

❒ Required Formulas :-

• $\dag \: \: \underline{ \boxed{\tt{ \: Current \: \: Ratio = \dfrac{Current \: \: Assets}{ Current \: \: Liabilities \: }}}}$

• $\dag \: \: \underline{ \boxed{ \tt{ \: Working \: \: Capital = Current \: \: Assets - Current \: \: Liabilities \: }}}$

• $\dag \: \: \underline{ \boxed{ \tt {\: Liquid \: \: Ratio = \dfrac{ Current \: \: Assets - Inventory}{Current \: \: Liabilities \: }}}}$

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❒ Calculation :-

It is given that,

• Current Ratio = 3.5

Using the formula of Current Ratio, we get,

• $\bigstar \: \: \sf{ \: Current \: \: Ratio = \dfrac{Current \: \: Assets}{ Current \: \: Liabilities \: }}$

$\longrightarrow \: \sf{ \: 3.5 = \dfrac{Current \: \: Assets}{Current \: \: Liabilities}}$

$\longrightarrow \: \sf{ \: Current \: \: Assets = 3.5 \times Current \: \: Liabilities}$ -----> (Eq. 1)

Again,

• Working Capital = Rs. 1,00,000

Using the formula of Working Capital, we get,

• ★ Working Capital = Current Assets - Current Liabilities

⇒ Rs. 1,00,000 = 3.5 × Current Liabilities - Current Liabilities [From (Eq. 1)]

⇒ Rs. 1,00,000 = Current Liabilities × (3.5 - 1)

⇒ Rs. 1,00,000 = Current Liabilities × 2.5

⇒ Current Liabilities = $\rm{\dfrac{Rs. 1,00,000}{2.5}}$

∴ Current Liabilities = Rs. 40,000

Substituting the value of Current Liabilities in (Eq. 1), we get,

• $\circledcirc \: \sf{ \: Current \: \: Assets = 3.5 \times Current \: \: Liabilities}$

$\implies \: \sf{ \: Current \: \: Assets = 3.5 \times Rs.\: 40,000}$

∴ Current Assets = Rs. 1,40,000

Here,

• Liquid Ratio = 2.5

• Current Assets = Rs. 1,40,000

• Current Liabilities = Rs. 40,000

Using the formula of Liquid Ratio, we get,

• $\bigstar \: \: \sf{\: Liquid \: \: Ratio = \dfrac{ Current \: \: Assets - Inventory}{Current \: \: Liabilities \: }}$

$\implies \: \sf{2.5 = \dfrac{Rs. \: 1,40,000 - Inventory}{Rs. \: 40,000}}$

$\implies \: \sf{Rs. \: 1,40,000 - Inventory = 2.5 \times Rs. \: 40,000}$

$\implies \: \sf{Rs. \: 1,40,000 - Inventory = Rs. \: 1,00,000}$

$\implies \: \sf{Inventory = Rs. \: 1,40,000 - Rs. \: 1,00,000}$

∴ Inventory = Rs. 40,000

Hence,

• ✎ Current Assets = Rs. 1,40,000

• ✎ Current Liabilities = Rs. 40,000

• ✎ Inventory = Rs. 40,000