Question

Which of the following is/are not included in Current Assets to calculate Current Ratio?

Options

• Loose Tools and Stores and Spares.

• Trade receivables (after 12 months or after the Operating Cycle period from the date of the Balance Sheet).

• Prepaid Expenses

• Both Loose Tools and Stores and Spares and Trade receivables (after 12 months or after the Operating Cycle period from the date of the Balance Sheet).

Answer 1

Both Loose Tools and Stores and Spares and Trade receivables (after 12 months or after the Operating Cycle period from the date of the Balance Sheet).
Explanation:

The Current Ratio measures a firm's short-term liquidity, so it only includes assets that can be converted into cash within 12 months or the operating cycle. Loose tools, stores, and spares are excluded because they are meant for consumption in operations rather than sale or cash conversion. Similarly, trade receivables due after 12 months are classified as non-current assets because they will not provide cash in the short term.