Question

O.M. Ltd has a Current Ratio of 3.5 : 1 and Quick Ration of 2 : 1. If the excess of Current Assets over Quick Assets as represented by Stock is Rs 1,50,000, calculate Current Assets and Current Liabilities.

Answer 1

`"Current  ratio" = "Current Assets" / "Current Liabilities" ` 

or 3.5= `"Current Assets" / "Current Liabilities" ` 

or, Current Assets = 3.5 Current Liabilities … (1) 

`"Quick Ratio"= "Quick Assets"/"Current Liabilities"="Current Stock-Prepaid Expenses"/"Current Liabilities"` 

`or,2 3.5 "Current Liabilities-Stock" - "Prepaid Expenses"/"Current Liabilites"`

or, 2 Current Liabilities = 3.5 Current Liabilities − 1,50,000 − 0

or, 1.5 Current Liabilities = 1,50,000

or, Current Liabilities = 1,00,000

or, Current Assets = 3.5 × 1,00,000

or, Current Assets = 3,50,000

∴ Current Assets = 3,50,000