Question 29 of 47intermediate🔧 ApplyNumerical3 marks

Shine Limited has a current ratio 4.5 : 1 and quick ratio 3 : 1; if the inventory is 36,000, calculate Current Liabilities and Current Assets.

Correct Answer

Current Liabilities = Rs. 24,000; Current Assets = Rs. 1,08,000

Exercise: Questions for Practice | Q: 4 | (Page 43)
For More Understanding

Explanation

This question tests the relationship between Current Ratio, Quick Ratio, and Inventory. The key insight is that Inventory = Current Assets - Quick Assets. By expressing Current Assets and Quick Assets in terms of Current Liabilities (using the given ratios), we can solve for the unknown values.

Solution Steps

  1. Step 1: Let Current Liabilities = x

  2. Step 2: Current Ratio = 4.5 : 1, therefore Current Assets = 4.5x

  3. Step 3: Quick Ratio = 3 : 1, therefore Quick Assets = 3x

  4. Step 4: We know that Inventory = Current Assets - Quick Assets

  5. Step 5: Substituting values: 36,000 = 4.5x - 3x

  6. Step 6: 36,000 = 1.5x

  7. Step 7: x = 36,000 ÷ 1.5 = Rs. 24,000 (Current Liabilities)

  8. Step 8: Current Assets = 4.5×244.5 \times 24,000 = Rs. 1,08,000

PreviousNext