Question

Quick Ratio of Galaxy Ltd. is 2 : 1. State giving reason, which of the following will improve, reduce or not change the ratio: 19.

1. Purchase of Stock-in-Trade for cash.
2. Cash collected from Trade Receivables.
3. Cash Sale of Inventory (Costing 20,000) for 22,000.
4. Sale of an office furniture (Book value ₹ 10,000) for ₹ 9,000 for cash.

Answer 1

1. Reduces
   Reason: Cash (a quick asset) decreases, while inventory increases. Since inventory is not a quick asset, total Quick Assets decrease while Current Liabilities remain unchanged.
2. No Change
   Reason: One quick asset (Cash) increases and another quick asset (Trade Receivables) decreases by the same amount. Total Quick Assets remain unchanged.
3. Improves
   Reason: Cash increases by ₹ 22,000, which increases total Quick Assets. The reduction in inventory does not affect quick assets since inventory is already excluded from them.
4. Improves
   Reason: Cash increases by ₹ 9,000, leading to an increase in total Quick Assets. Furniture is a non-current asset, so its sale does not affect current or quick liabilities.