Question

Q.8) From the following data, Calculate Current Ratio and Liquid Ratio:
Liquid Assets
Rs. 75,000
Inventories (includes Loose Tools of Rs. 20,000) Rs 35,000
Prepaid Expenses
Rs. 10,000
Working Capital
Rs. 60,000​

Answer 1

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Answer 2

Accounting ratios are a range of measurements used to gauge the effectiveness and profitability of a firm based on its financial reporting. They are a crucial subset of financial ratios.

The Current Ratio is 2 and the Liquid Ratio is 0.6667 or 2:3

To calculate the Current Ratio and Liquid Ratio, we need to first identify the components of each ratio:

Current Ratio = Current Assets / Current Liabilities

Liquid Ratio = (Liquid Assets - Inventories) / Current Liabilities

We have been given the following information:

   Liquid Assets = Rs. 75,000

   Inventories (includes Loose Tools of Rs. 20,000) = Rs. 35,000

   Prepaid Expenses = Rs. 10,000

   Working Capital = Rs. 60,000

We can calculate the Current Assets by summing up the Liquid Assets, Inventories and Prepaid Expenses:

Current Assets = Liquid Assets + Inventories + Prepaid Expenses

= 75,000 + 35,000 + 10,000

= Rs. 1,20,000

Now, we can use the formula for Current Ratio to calculate the ratio:

Current Ratio = Current Assets / Current Liabilities

Given, Working Capital = Current Assets - Current Liabilities

60,000 = 1,20,000 - Current Liabilities

Current Liabilities = 60,000

Therefore, Current Ratio = Current Assets / Current Liabilities

= 1,20,000 / 60,000

= 2

Now, we can use the formula for Liquid Ratio to calculate the ratio:

Liquid Ratio = (Liquid Assets - Inventories) / Current Liabilities

= (75,000 - 35,000) / 60,000

= 0.6667 or 2:3 (approx)

for such more question on current ratio

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