Read the following information and answer the question.
Following is the Balance Sheet of Titanic Ltd. as at March 31, 2022.
| Particulars | Amount (₹) |
| 1. Shareholder's Fund a) Share Capital b) Reserves & Surplus |
24,00,000 6,00,000 |
| 2. Non-current liabilities Long-term borrowings |
9,00,000 |
| 3. Current liabilities a) Short term borrowings b) Trade Payables c) Short-term Provisions |
6,00,000 23,40,000 60,000 |
| Total | 69,00,000 |
| II. Assets 1)Non-Current Assets a) Fixed assets b) Tangible assets |
45,00,000 |
| 2. Current Assets a) Inventories b) Trade Receivables c) Cash and Cash equivalent d) Short-term loans & advances |
12,00,000 9,00,000 2,28,000 72,000 |
| Total | 69,00,000 |
The liquid Ratio for Titanic Ltd. for the year ended 31st March 2022 will be:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → 0.4:1
Liquid ratio = Liquid assets ÷ Current liabilities, where liquid assets = current assets − inventories − prepaid expenses. Short-term loans and advances stay in liquid assets.
Current assets = 12,00,000 + 9,00,000 + 2,28,000 + 72,000 = Rs. 24,00,000
Liquid assets = 24,00,000 − 12,00,000 (inventories) = Rs. 12,00,000
Current liabilities = 6,00,000 + 23,40,000 + 60,000 = Rs. 30,00,000
Liquid ratio = 12,00,000 ÷ 30,00,000 = 0.4:1
The long-term borrowings of Rs. 9,00,000 are a non-current liability and are left out of current liabilities.