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Question
The quick ratio of Theta Ltd. is 0.8 : 1. Which of the following transactions will result in a decrease in this ratio?
Options
Sold goods on credit ₹ 39,000.
Cash collected from debtors ₹ 76,000.
Outstanding electricity bill paid ₹ 41,000.
Issue of shares ₹ 5,00,000.
MCQ
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Solution
Outstanding electricity bill paid ₹ 41,000.
Explanation:
Given Ratio = 0.8 : 1. Let’s assume Quick Assets = ₹ 80,000 and Current Liabilities = ₹ 1,00,000.
Quick Ratio = `"Quick Assets"/"Current Liabilities"`
= `(80,000)/(1,00,000)`
= 0.8
When you pay an outstanding bill of ₹ 41,000:
Quick Assets (Cash) decreased by ₹ 41,000.
Current Liabilities (Outstanding Bill) decrease by ₹ 41,000.
New Quick Assets = 80,000 − 41,000
= 39,000
New Current Liabilities = 1,00,000 − 41,000
= 59,000
New Ratio = `(39,000)/(59,000)` ≈ 0.66 : 1
Since 0.66 is less than the original 0.8, the ratio has decreased.
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