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Home Questions 5M6W8ZMC2B
Target Exam

CUET

Subject

-- Accountancy Part B

Chapter

Accounting Ratios

Question:

Match the following-

LIST 1 LIST 2
A) Current ratio I) 1:1
B) Quick ratio II) Deducted from current asset to calculate quick assets
C) Inventory III) 2:1
D) Equity IV) Used in long-term solvency ratio

Choose the correct answer from the options given below.

Options:

A-I, B-III, C-IV, D-II

A-III, B-I, C-IV, D-II

A-III, B-I, C-II, D-IV

A-I, B-III, C-II, D-IV

Correct Answer:

A-III, B-I, C-II, D-IV

Explanation:

The correct answer is option 3- A-III, B-I, C-II, D-IV.

LIST 1 LIST 2
A) Current ratio III) 2:1
B) Quick ratio I) 1:1
C) Inventory II) Deducted from current asset to calculate quick assets
D) Equity IV) Used in long-term solvency ratio

 

* Current ratio- In general, investors look for a company with a current ratio of 2:1, meaning current assets twice as large as current liabilities. A current ratio less than one indicates the company might have problems meeting short-term financial obligations.

* Quick ratio- Ratio of 1:1 is held to be the ideal quick ratio indicating that the business has in its possession enough assets which may be immediately liquidated for paying off the current liabilities.

* Inventory- While calculating quick assets we exclude the inventories at the end and other current assets such as prepaid expenses, advance tax, etc., from the current assets.

* Equity- Solvency ratios are calculated to determine the ability of the business to service its debt in the long run. While determining solvency ratio equity is used.

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