Calculate Current Ratio from the following given information.
Liquid Ratio 0.75 : 1
Current Liabilities Rs. 1,80,000
Prepaid Expenses Rs. 20,000
Inventory Rs. 47,250
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → 1.12 : 1
Liquid ratio = liquid assets ÷ current liabilities, and liquid assets are current assets minus inventory and prepaid expenses. So the liquid assets are found first, and inventory and prepaid expenses are then added back to get the current assets.
Liquid assets = 0.75 × Rs. 1,80,000 = Rs. 1,35,000
Current assets = Rs. 1,35,000 + Rs. 47,250 + Rs. 20,000 = Rs. 2,02,250
Current ratio = Rs. 2,02,250 ÷ Rs. 1,80,000 = 1.1236
Current ratio = 1.12 : 1