The quick ratio of a firm is 2: 1. Purchase of stock for cash will ........... quick ratio.`
Answer & explanation
Correct answer: option 2
The quick ratio of a firm is 2: 1. And Purchase of stock for cash is done by the company.
Lets assume liquid assets is ₹200000 and current liabilities is of ₹100000. Purchase of stock of ₹50000 makes the stock to increase and cash to decrease by this amount of ₹50000. But stock is not include in liquid assets so there is no effect on stock only cash is decreased by 50000. So, liquid asset is 150000 and current liabilities ₹100000.
Current ratio = 150000 / 100000
= 1.5:1
Hence,quick ratio reduce.