Question : Cash Balance Rs.5000; Trade Payable Rs.40000; Inventory Rs.50000; Trade Receivable Rs.65000; and Prepaid expense Rs.10000. Liquid Rratio will be -
Option 1: 2 : 1
Option 2: 3.25 : 1
Option 3: 1.75 : 1
Option 4: 3 : 1
Correct Answer: 1.75 : 1
Solution : The measurement of indicators such as the current ratio, quick ratio, and operating cash flow ratio allows us to calculate liquidity ratios, which assess a company's capacity to satisfy debt obligations as well as its margin of safety.
Formula of Liquid ratio is
Liquid Ratio = (Current Assets- Inventory)/Current Liability
Hence the answer is as follows : (Cash Balance + Trade receivable) / Trade Payable
(5000 + 65000) / 40000
1.75 : 1
Note : Inventory and Prepaid Expenses are not curent assets for the purpose of Liquidity ratio as it considers only liquid assets, hence not included in current assets.
Hence the Correct answer is option 3.
Question : Cash balance Rs. 5000. Trade payable Rs. 40,000. Inventory Rs. 50,000. Trade receivable Rs. 60,000. Prepaid expenses Rs. 5,000, Current ratio will be
Option 1: 2:1
Option 2: 3:1
Option 3: 2.5:1
Option 4: None of the above
Question : Cash Balance Rs.7,000; Trade Payable Rs.50,000; Inventory Rs.60,000; Trade Receivables Rs.73,000 and Prepaid Expenses are Rs.20,000. What will be the Liquid Ratio?
Option 1: 3.2:1
Option 2: 2:1
Option 3: 1.6:1
Option 4: 1.7:1
Question : Trade receivable Rs. 40,000. Trade payable Rs. 20,000. Prepaid expenses Rs. 10,000. Inventory is Rs. 1,00,000 and goodwill is Rs. 15,000. The quick ratio will be
Option 1: 2.5:1
Option 2: 1:2
Option 3: 2.33:1
Option 4: 2:1
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