Read the following information about Balance Sheet of XYZ Ltd. (As of 31st March 2020) and answer the question.

EQUITY AND LIABILITIES (Amount in â‚¹)

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.

1:1

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