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Target Exam

CUET

Subject

-- Accountancy Part B

Chapter

Accounting Ratios

Question:

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 two basic measures of liquidity are:

Options:

Inventory turnover and Current Ratio

Current Ratio & Liquid Ratio

Gross Profit Ratio & Operating Ratio

Current Ratio and average collection period

Correct Answer:

Current Ratio & Liquid Ratio

Explanation:

The correct answer is option 2- Current Ratio & Liquid Ratio.

Liquidity ratios are calculated to measure the short-term solvency of the business, i.e. the firm’s ability to meet its current obligations. These are analysed by looking at the amounts of current assets and current liabilities in the balance sheet. The two ratios included in this category are current ratio and liquidity ratio. Current ratio is the proportion of current assets to current liabilities. Quick ratio is the ratio of quick (or liquid) asset to current liabilities.

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