The current ratio of a firm is 2:1 and quick ratio is 1:1. If liabilities are Rs.1,00,000 then find the value of working capital.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs 1,00,000
Working capital = current assets − current liabilities, and the current ratio gives the current assets.
Current ratio 2:1, so current assets = 2 × 1,00,000 = Rs. 2,00,000
Working capital = 2,00,000 − 1,00,000 = Rs. 1,00,000
The quick ratio of 1:1 is not needed here; it would only give the inventory (current assets − quick assets = Rs. 1,00,000).
Note: The question says “liabilities”; it should read “current liabilities”, because the current ratio and working capital are both worked on current liabilities. Read that way, current assets are Rs. 2,00,000 and the answer Rs 1,00,000 holds.