Question

A Company’s Current Ratio is 2.5 : 1 and its Working Capital is ₹ 60,000. If its Inventory is ₹ 52,000, what will be the liquid Ratio?

Options

• 2.3 : 1

• 2.8 : 1

• 1.3 : 1

• 1.2 : 1

Answer 1

1.2 : 1

Explanation:

Let the Current Liabilities be `x`

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

= 2.5 : 1

So,

Current Assets = `2.5x`

Working Capital = Current Assets − Current Liabilities

60,000 = `2.5x − x`

60,000 = `1.5x`

`(60,000)/(1.5)` = `x`

Current Liabilities `(x)` = ₹ 40,000

Current Assets = `2.5x`

= 2.5 × 40,000

= ₹ 1,00,000

Liquid Assets = Current Assets − Inventory

= 1,00,000 − 52,000

= ₹ 48,000

Liquid Ratio = `"Liquid Assets"/"Current Liabilities"`

= `(48,000)/(40,000)`

= 1.2 : 1