Advertisements
Advertisements
Question
Assertion (A): Current Ratio establishes relationship between Current Assets and Current Liabilities.
Reason (R): The objective of this ratio is to measure the ability of the firm to meet its short term obligations as and when due without relying upon the realisation of inventories.
In the context of the above two statements choose the correct options.
Options
(A) is true but (R) is false.
Both (A) and (R) are true, and (R) is a correct explanation of (A).
Both (A) and (R) are false.
(A) is false, but (R) is true.
Advertisements
Solution
(A) is true but (R) is false.
Explanation:
The current ratio shows the relationship between current assets and current liabilities, hence the assertion is correct. However, the statement about satisfying obligations without relying on inventories relates to the Quick Ratio, not the Current Ratio. Therefore, the assertion is true and the reason is false.
