Question

Following particulars are given to you:

Particulars		₹
Goodwill		1,00,000
Inventories		2,50,000
Trade Receivables	1,35,000
Less: Provision	5,000	1,30,000
Investments (Short term)		30,000
Expenses paid in Advance		20,000
Cash and Bank Balance		40,000
Accrued Income		10,000
Short-term Provision		20,000
Short-term Borrowings (Bank Overdraft)		30,000
Trade Payables		95,000
Expenses Payable		5,000

Calculate the Current Ratio and Quick Ratio. What Conclusions do you draw from these ratios?

Answer 1

Current Assets = Inventories + Trade Receivables + Investments (Short-term) + Expenses paid in Advance + Cash and Cash Equivalents + Accrued Income

= ₹ 2,50,000 + ₹ 1,30,000 + ₹ 30,000 + ₹ 20,000 + ₹ 40,000 + ₹ 10,000

= ₹ 4,80,000

Current Liabilities = Short-term Provision + Short-term Borrowings (bank overdraft) + Trade Payables + Expenses Payable

= ₹ 20,000 + ₹ 30,000 + ₹ 95,000 + ₹ 5,000

= ₹ 1,50,000

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

= `(₹ 4,80,000)/(₹ 1,50,000)`

= 3.2 : 1

Quick Assets = Current Assets − Inventories − Prepaid Expenses

= ₹ 4,80,000 − ₹ 2,50,000 − ₹ 20,000

= ₹ 2,10,000

Current Liabilities = ₹ 1,50,000

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

= `(₹ 2,10,000)/(₹ 1,50,000)`

= 1.4 : 1

Note: Accrued Income is included in current assets as well as in quick assets.