Question

From the following data, calculate Liquid Ratio: Current Assets Rs.50,000; Inventory Rs.13,000; Prepaid Expenses Rs.1,000 and Working Capital Rs.30,000

Answer 1

ANSWER :

• ❖ If Current Assets is Rs. 50,000; Inventory is Rs. 13,000; Prepaid Expenses is Rs. 1,000 and Working Capital is Rs. 30,000; then Liquid Ratio will be 1.8 : 1.

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SOLUTION :

❒ Given :-

• Current Assets = Rs. 50,000

• Inventory = Rs. 13,000

• Prepaid Expenses = Rs. 1,000

• Working Capital = Rs. 30,000

❒ To Calculate :-

• Liquid Ratio = ?

❒ Required Formulas :-

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

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

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❒ Calculation :-

Here,

• Current Assets = Rs. 50,000

• Working Capital = Rs. 30,000

Using the formula of Working Capital, we get,

• ✠ Working Capital = Current Assets - Current Liabilities

⇒ Rs. 50,000 = Rs. 30,000 - Current Liabilities

⇒ Current Liabilities = Rs. 50,000 - Rs. 30,000

⇒ Current Liabilities = Rs. 20,000

Again,

• Current Assets = Rs. 50,000

• Inventory = Rs. 13,000

• Prepaid Expenses = Rs. 1,000

We know that,

• ✠ Liquid Assets = Current Assets - Inventory - Prepaid Expenses

⇒ Liquid Assets = Rs. 50,000 - Rs. 13,000 - Rs. 1,000

⇒ Liquid Assets = Rs. 36,000

Now, we have,

• Liquid Assets = Rs. 36,000

• Current Liabilities = Rs. 20,000

Using the formula of Liquid Ratio, we obtain,

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

$\longrightarrow \: \tt{Liquid \: \: Ratio = \dfrac{Rs. \: 36,000}{Rs.\: 20,000}}$

$\longrightarrow \: \tt{Liquid \: \: Ratio = \dfrac{ 36}{20}}$

$\longrightarrow \: \tt{Liquid \: \: Ratio = \dfrac{9}{5}}$

$\longrightarrow \: \tt{Liquid \: \: Ratio = \dfrac{1.8}{1}}$

$\therefore \: \tt{Liquid \: \: Ratio = \underline{ 1.8 : 1}}$

Answer 2

Answer:

It's 1.8:1.

Explanation:

The process is given in the pic.