What is Meant by 'Liquidity of Business'? - Accountancy


What is meant by 'Liquidity of Business'?



Liquidity of business refers to the ability of a business to meet its immediate and short term obligations.

Concept: Liquidity Ratios
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2015-2016 (March) Delhi Set 2


The current ratio of X. Ltd is 2:1. State with reason which of the following transaction would

i. Increase or ii. decrease or iii. not change the ratio

1. Included in the trade payables was a bills payable of Rs.9,000 which was met on maturity.

2. Company issued 1,00,000 equity shares of Rs.10 each to the Vendors of machinery purchased.

O.M. Ltd has a Current Ratio of 3.5 : 1 and Quick Ration of 2 : 1. If the excess of Current Assets over Quick Assets as represented by Stock is Rs 1,50,000, calculate Current Assets and Current Liabilities.

 A business has a current ratio of 3 : 1 and quick ratio of 1.2 : 1. If the working capital is Rs 1,80,000, calculate the total Current Assets and value of stock.

 From the given information calculate the Stock turnover ratio. Sales Rs 2,00,000; G.P: 25% on cost; Stock at the beginning is 1/3 of the stock at the end which was 30% of sales. 

Current ratio of Adaar Ltd. is 2.5:1. Accountant wants to maintain it at 2:1. Following options are available.

  1. He can repay Bills Payable
  2. He can purchase goods on credit
  3. He can take short term loan

Which one of the following analysis is considered as a dynamic analysis?

Which of the following is not included in cash and cash equivalents?

Liquid assets = ______.

A decrease in Outstanding Expenses would result in:

A Company's Current Liabilities decreased from ₹ 12,00,000 to ₹ 9,00,000. What is the percentage of change in Current Liabilities?

Which one of-the following statement is incorrect?

______ is included in current assets while preparing balance sheet as per revised Schedule III but excluded from current assets while calculating Current Ratio.

A company had Current Assets of ₹ 3,00,000 and Current Liabilities of ₹ 1,50 000, having a Current Ratio of 2:1. What will be the company's revised Current Ratio after it collects ₹ 20,000 cash from its debtors of ₹ 25,000, the remaining debtors being bad?

State with reason whether Provision for Doubtful Debts is subtracted from Trade Receivables while computing Current Ratio.

Calculate Debt to Total Assets Ratio of Moonlight Ltd. (up-to two decimal places) from the following information:

Particulars (₹)
Property, Plant & Equipment and Intangible Assets 20,00,000
Shares of XYZ Bank Ltd. 1,00,000
Long-term Loans and Advances 1,00,000
Current Assets 10,00,000
Current Liabilities 4,00,000
Total Debt 12,00,000

Calculate Quick Ratio (up-to two decimal places) from the following information:

Particulars (₹)
Total Current Assets 90,000
Working Capital 60,000
Prepaid Expenses 30,000


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