Calculate 'Liquid Ratio' from the following information:
|
Current liabilities |
Rs. 50,000 |
|
Current assets |
Rs. 80,000 |
|
Inventories |
Rs. 20,000 |
|
Advance tax |
Rs. 5,000 |
|
Prepaid expenses |
Rs. 5,000 |
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → 1:1
Liquid Ratio=Liquid Assets / Current Liabilities
Advance Tax = Rs. 5,000 (Treated as a non-quick asset because it's not available to pay creditors)
Liquid Assets= Current Assets − (Inventories + Prepaid Expenses + Advance Tax)
= 80,000 − (20,000 + 5,000 + 5,000)
= 80,000−30,000=50,000
Liquid Ratio=50,000/ 50,000 = 1 :1