Question 30 of 47intermediate🔧 ApplyNumerical3 marks

Current Liabilities of a company are Rs. 75,000. If current ratio is 4:1 and Liquid Ratio is 1 : 1, calculate value of Current Assets, Liquid Assets and Inventory.

Correct Answer

Current Assets = Rs. 3,00,000; Liquid Assets = Rs. 75,000; Inventory = Rs. 2,25,000

Exercise: Questions for Practice | Q: 5 | (Page 43)
For More Understanding

Explanation

The question is solved using the formulas for Current Ratio and Liquid Ratio found in the context. Current Ratio is defined as Current Assets divided by Current Liabilities. Liquid Ratio (or Quick Ratio) is defined as Liquid Assets divided by Current Liabilities. The context also establishes the relationship: Inventories = Current Assets – Quick/Liquid Assets.

Solution Steps

  1. Calculation of Current Assets: Current Ratio = Current Assets / Current Liabilities 4 = Current Assets / 75,000 Current Assets = 75,000×4000 \times 4 Current Assets = Rs. 3,00,000

  2. Calculation of Liquid Assets: Liquid Ratio = Liquid Assets / Current Liabilities 1 = Liquid Assets / 75,000 Liquid Assets = 75,000×1000 \times 1 Liquid Assets = Rs. 75,000

  3. Calculation of Inventory: Inventory = Current Assets – Liquid Assets Inventory = 3,00,000 – 75,000 Inventory = Rs. 2,25,000

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