What will be the impact of "sale of goods worth Rs. 5000 on cash" on Current Ratio and Quick Ratio?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Current Ratio will not change, Quick Ratio will improve
Note: The given answer is as per the official NTA Answer Key. However, the question does not say whether the goods were sold at their book value or at a profit, and with the second reading Option (2) could also be a possible answer, as explained below.
The current ratio compares all current assets with current liabilities. The quick ratio leaves out inventories, comparing only quick assets (such as cash and trade receivables) with current liabilities. Current liabilities do not change in this transaction.
Goods sold at their book value of Rs. 5,000:
Inventory falls by Rs. 5,000 and cash rises by Rs. 5,000
Total current assets do not change, so the current ratio does not change
Quick assets rise by Rs. 5,000 (inventory is not counted in them), so the quick ratio improves
Goods that cost less than Rs. 5,000 sold for Rs. 5,000 (at a profit):
Inventory falls by the cost and cash rises by Rs. 5,000
Total current assets rise by the profit, so the current ratio improves
Quick assets rise by Rs. 5,000, so the quick ratio improves
Option (1) Current Ratio will not change, Quick Ratio will improve — Correct. This holds when the goods are sold at book value, the reading the answer given by NTA takes for "goods worth Rs 5000".
Option (2) Current Ratio will improve, Quick ratio will improve — Should also be correct, though not the answer given by NTA. If the goods were sold at a profit, the profit adds to current assets, so the current ratio improves along with the quick ratio.
Option (3) Current Ratio will not change, Quick ratio will not change — Incorrect. Cash, a quick asset, goes up while inventory, which is not a quick asset, goes down, so the quick ratio cannot stay the same.
Option (4) Current Ratio will improve, Quick Ratio will not change — Incorrect. On either reading the quick ratio improves, because cash comes in and no current liability changes.
NCERT (2026-27 edition):
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