Match List-I with List-II
| List-I | List-II |
|---|---|
| (A) Inventories at the end and other current assets such as prepaid expenses, advance tax, etc. are not included in | (I) Advantage of Ratio Analysis |
| (B) Identification of problem areas | (II) Quick Assets |
| (C) Ratios are means to an end rather than the end by itself | (III) Current Ratio |
| (D) 2:1 is the benchmark of | (IV) Limitation of the ratios |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A) - (II), (B) - (I), (C) - (IV), (D) - (III)
Two items concern the liquidity ratios, and two concern what ratio analysis can and cannot do.
(A) Inventories at the end and other current assets such as prepaid expenses, advance tax, etc. are not included in — this matches (II) Quick Assets. Quick assets are the current assets that can be turned into cash at once, so inventories and prepaid items are excluded.
(B) Identification of problem areas — this matches (I) Advantage of Ratio Analysis. Ratios bring out the problem areas and the bright spots of a business, so management knows where to act.
(C) Ratios are means to an end rather than the end by itself — this matches (IV) Limitation of the ratios. A ratio only points to a problem; it has to be interpreted and does not by itself solve anything.
(D) 2:1 is the benchmark of — this matches (III) Current Ratio. Current assets twice the current liabilities is the usual safe level for the current ratio.
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