Question

Quick Assets ₹ 3,00,000; Inventory (Stock) ₹ 80,000; Prepaid Expenses ₹ 20,000; Working Capital ₹ 2,40,000. Calculate the current ratio.

Hints:

1. Current Assets = Quick Assets + Inventory + Prepaid Expenses.
2. Current Liabilities = Current Assets − Working Capital.

Answer 1

Given:

Quick Assets: ₹ 3,00,000

Inventory (Stock): ₹ 80,000

Prepaid Expenses: ₹ 20,000

Working Capital: ₹ 2,40,000

Calculation of Current Assets:

\[\text{Current Assets} = \text{Quick Assets} + \text{Inventory} + \text{Prepaid Expenses}\]
$$\text{Current Assets} = ₹ 3,00,000 + ₹ 80,000 + ₹ 20,000$$
$${\text{Current Assets} = ₹ 4,00,000}$$

Calculation of Current Liabilities:

$$\text{Current Liabilities} = \text{Current Assets} - \text{Working Capital}$$
$$\text{Current Liabilities} = ₹ 4,00,000 - ₹ 2,40,000$$
$${\text{Current Liabilities} = ₹ 1,60,000}$$

Calculation of Current Ratio:

$$\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}$$
$$\text{Current Ratio} = \frac{4,00,000}{1,60,000} = 2.5$$

Current Ratio = 2.5 : 1