Question : Assertion (A): The current ratio assesses the firm’s ability to meet its short-term liabilities on time. Reason (R): The current ratios assess the ability of the firm to meet its current liabilities immediately
Option 1: Both A and R are true and R is the correct explanation of A.
Option 2: Both A and R are true, but R is not the correct explanation of A.
Option 3: A is true, but R is false.
Option 4: A is false, but R is true.
Correct Answer: A is true, but R is false.
Solution : The current ratio contrasts the total current assets and liabilities of a business. These are often described as liabilities that will be paid in a year or less and assets that are cash or will be converted into cash in a year or less. Hence 3 is the correct answer.
Question : Assertion (A): Activity ratios are calculated for measuring the efficiency of operations of a business based on the effective utilization of resources. Reason (R): The current ratio, Quick ratio, asset turnover ratio, inventory ratio, account receivables turnover, etc
Question : Assertion (A): The difference between Total Assets and Current liabilities is capital employed. Reason (R): Capital employed is a measure of a company's complete financial commitment to its operations, including any expansion or acquisition costs.
Question : Assertion (A): Current Assets/Current Liabilities is the formula for calculating the current ratio Reason (R): The current ratio is derived by dividing current assets by current liabilities. Current assets are made up of spare parts, loose tools, and stores.
Question : Assertion (A): Current Liabilities are calculated by subtracting Working Capital from Current Assets. Reason (R): Working Capital = Current Assets – Current Liabilities
Question : Assertion (A): Liquidity Ratios provide information on the firm's capacity to satisfy its immediate financial obligations. Reason (R): The current ratio and quick ratio are two liquidity ratios that aid in determining a company's financial standing and ability to
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