Current assets of a company are Rs. 5,00,000. Current ratio is 2.5:1 and Liquid ratio is 1:1. Calculate the value of current liabilities, liquid assets and inventories.
Current Liabilities: Current Ratio = Current Assets / Current Liabilities 2.5 = Rs. 5,00,000 / Current Liabilities Current Liabilities = Rs. 5,00,000 / 2.5 = Rs. 2,00,000.
Liquid Assets: Liquid Ratio = Liquid Assets / Current Liabilities 1 = Liquid Assets / Rs. 2,00,000 Liquid Assets = Rs. 2,00,000.
Inventories: Inventories = Current Assets - Liquid Assets Inventories = Rs. 5,00,000 - Rs. 2,00,000 = Rs. 3,00,000.
Explanation
The solution applies the standard formulas provided in the context. Current Liabilities are derived by rearranging the Current Ratio formula. Liquid Assets are calculated using the Liquid Ratio formula, where a ratio of 1:1 indicates Liquid Assets equal Current Liabilities. Finally, Inventories are found by subtracting Liquid Assets from Current Assets, based on the relationship established in the text (Inventories = Current Assets - Quick Assets).
Solution Steps
Step 1: Calculate Current Liabilities using the Current Ratio formula. Current Liabilities = Current Assets / Current Ratio = Rs. 5,00,000 / 2.5 = Rs. 2,00,000.
Step 2: Calculate Liquid Assets using the Liquid Ratio formula. Liquid Assets = Liquid Ratio × Current Liabilities = 1 × Rs. 2,00,000 = Rs. 2,00,000.
Step 3: Calculate Inventories. Inventories = Current Assets - Liquid Assets = Rs. 5,00,000 - Rs. 2,00,000 = Rs. 3,00,000.