Question 33 of 47intermediate🔧 ApplyNumerical3 marks

Calculate Current Ratio if: Inventory is Rs. 6,00,000; Liquid Assets Rs. 24,00,000; Quick Ratio 2 : 1.

Correct Answer

Current Ratio is calculated as 2.5 : 1.

Calculation of Current Liabilities: Quick Ratio = Liquid Assets / Current Liabilities 2 = 24,00,000 / Current Liabilities Current Liabilities = Rs. 12,00,000

Calculation of Current Assets: Current Assets = Liquid Assets + Inventory Current Assets = 24,00,000 + 6,00,000 Current Assets = Rs. 30,00,000

Calculation of Current Ratio: Current Ratio = Current Assets / Current Liabilities Current Ratio = 30,00,000 / 12,00,000 Current Ratio = 2.5 : 1

Exercise: Questions for Practice | Q: 8 | (Page 43)
For More Understanding

Explanation

The solution follows the standard method shown in the textbook context (specifically similar to the Handa Ltd. example). First, the Current Liabilities are derived using the Quick Ratio formula. Then, Inventory is added to Liquid Assets to find Current Assets. Finally, the Current Ratio is computed by dividing Current Assets by Current Liabilities.

Solution Steps

  1. Step 1: Calculate Current Liabilities using Quick Ratio formula: Current Liabilities = Liquid Assets / Quick Ratio = Rs. 24,00,000 / 2 = Rs. 12,00,000.

  2. Step 2: Calculate Current Assets by adding Inventory to Liquid Assets: Current Assets = Rs. 24,00,000 + Rs. 6,00,000 = Rs. 30,00,000.

  3. Step 3: Calculate Current Ratio: Current Ratio = Current Assets / Current Liabilities = Rs. 30,00,000 / Rs. 12,00,000 = 2.5 : 1.

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