Question

Following is the Balance Sheet of Crescent Chemical Works Limited as at 31st March, 2026:

Particulars	Note No.	₹
I. EQUITY AND LIABILITIES: 1. Shareholder's Funds :
(a) Share Capital		7,00,000
(b) Reserves and Surplus		3,50,000
2. Non-Current Liabilities:
Long-term Borrowings		2,50,000
3. Current Liabilities:
(a) Short-term Borrowings		30,000
(b) Trade Payables (Creditors)		1,30,000
(b) Short-term Provisions: Provision for Tax		40,000
Total		15,00,000
II. ASSETS :
1. Non-Current Assets
(a) Fixed Assets (Tangible)		4,50,000
(b) Non-current Investments		50,000
2. Current Assets
(a) Inventories (Stock)		5,00,000
(b) Trade Receivables (Debtors)		3,00,000
(c) Cash and Cash Equivalents		2,00,000
Total		15,00,000

Compute Current Ratio and Liquid Ratio.

Answer 1

Current Assets = Inventory + Trade Receivables + Cash and Cash Equivalents

= 5,00,000 + 3,00,000 + 2,00,000 = 10,00,000

Current Liabilities = Short-term Borrowings + Trade Payables + Provision for Tax

= 30,000 + 1,30,000 + 40,000 = 2,00,000

Quick Assets = Trade Receivables + Cash and Cash Equivalents

= 3,00,000 + 2,00,000 = 5,00,000

`"Current Ratio" = "Current Assets"/ "Current liability" = (10,00,000)/(2,00,000) = 5 : 1`

`"Quick Ratio" = "Liquid  Assets"/"Current Liabilities" = (5,00,000)/(2,00,000) = 2.5 : 1`

Comments:

1. The ideal current ratio for a business is considered to be 2 : 1. But in this case, the ratio is quite high, i.e. 5 : 1. This may be due to the following reasons:

(i) Blockage of Funds in Stock

(ii) High Amount outstanding from Debtors

(iii) Huge Cash and Bank Balances

2. The ideal Quick Ratio of a business is supposed to be 1 : 1. This implies that Liquid Assets should be equal to the Current Liabilities. But in the given case, the Quick Ratio is 2.5 : 1, which indicates that the Liquid Assets are quite high in comparison to the Current Liabilities.