Read the following information about Balance Sheet of XYZ Ltd. (As of 31st March 2020) and answer the question.
EQUITY AND LIABILITIES (Amount in ₹)
1. Shareholder's Funds
- a. Share Capital 40,000
- b. Reserves and Surplus 10,000
2. Non-Current Liabilities
- a. Long term Loan (Debentures) 1,00,000
3. Current Liabilities
- a. Short term Borrowings 25,000
- b. Trade Payables 30,000
TOTAL 2,05,000
ASSETS
1. NON CURRENT ASSETS
- Fixed Assets 95,000
2. CURRENT ASSETS
- a. Inventories 25,000
- b. Trade Receivables 45,000
- c. Cash & Cash Equivalents 10,000
- d. Prepaid Expenses 30,000
TOTAL 2,05,000
From the above Balance Sheet calculate Quick Ratio.
Answer & explanation
Correct answer: option 4
The correct answer is option 4- 1:1.
CURRENT ASSETS = Inventories + Trade Receivables + Cash & Cash Equivalents + Prepaid Expenses
= 25,000 + 45,000 + 10,000 + 30,000
= ₹1,10,000
Liquid assets = Current assets - prepaid expenses - inventory
= 1,10,000 - 30,000 -25,000
= ₹55,000
Current Liabilities = Short term Borrowings + Trade Payables
= 25,000 + 30,000
= ₹55,000
Liquid ratio = Liquid assets/Current liabilities
= 55,000/55,000
= 1:1