Question

A company has a Quick Ratio of 1.8 : 1. Mention whether this ratio will improve/reduce/not change after it sells a machine worth ₹ 1,20,000 at a loss of ₹ 30,000.

Answer 1

Quick Ratio = 1.8 : 1

Quick Ratio = `("Quick Assets")/("Current Liabilities")`

On selling a machine worth ₹ 1,20,000 at a loss of ₹ 30,000, the cash will increase by ₹ 90,000

(1,20,000 − 30,000)

Let say, Quick assets are ₹ 1,80,000 and Current liabilities are ₹ 1,00,000. With selling of machine, the quick assets will increase as cash increases, ₹ 1,80,000 + ₹ 90,000 = ₹ 2,70,000 but, no change in current liabilities.

New Quick ratio = `(2,70,000)/(1,00,000)`

= 2.7 : 1

Thus, Quick ratio will Improve.