Read the following information given in the financial statements of the company and answer the following question.
| PARTICULARS | AMOUNT (₹) |
| Income tax paid in advance | 30,000 |
| Provision for tax | 55,000 |
| Bank Overdraft | 25,000 |
| Trade investments | 2,50,000 |
| Marketable securities | 40,000 |
| Tangible fixed asset | 6,00,000 |
| Intangible asset | 1,00,000 |
| Trade receivables included provision for doubtful debts of ₹20,000 | 2,00,000 |
| Trade payables | 1,20,000 |
| Cash balance | 80,000 |
| Rent payables | 10,000 |
| Dividend payables | 30,000 |
| Inventories | 3,90,000 |
| 8% Debentures matured after 6 years | 2,80,000 |
What will be the quick ratio?
Answer & explanation
Correct answer: option 2
The correct answer is option 2- 1.25:1.
Liquid assets = Current assets - inventories - income tax paid in advance
= 7,20,000 - 3,90,000 - 30,000
= ₹3,00,000
Current liabilities = Trade payables + rent payable + dividend payable + bank overdraft + provision for tax
= 1,20,000 + 10,000 + 30,000 + 25,000 + 55,000
= ₹2,40,000
Quick ratio = Liquid asset/ current liabilities
= 3,00,000/2,40,000
= 1.25:1