Question

Assertion (A): Current Ratio of 2 : l is supposed to be an ideal Current Ratio.

Reason (R): Quick Ratio of 1 : 1 is supposed to be an ideal Quick Ratio.

In the context of the above two statements, which of the following is correct?

Options

• Both (A) and (R) are true, but (R) is not the correct explanation of (A).

• Both (A) and (R) are true and (R) is the correct explanation of (A).

• Both (A) and (R) are false.

• (A) is false, but (R) is true.

Answer 1

Both (A) and (R) are true, but (R) is not the correct explanation of (A).

Explanation:

The ideal Current Ratio is 2 : 1, which suggests that current assets should be twice as much as current liabilities to ensure short-term solvency. The optimum Quick Ratio is 1 : 1, indicating that quick assets alone can pay current liabilities. Both statements are correct, but the Quick Ratio does not explain why the Current Ratio is 2 : 1. As a result, the reason is not an accurate explanation of the assertion.