Question 26:
Xolo Ltd.'s Liquidity Ratio is 2.5 : 1. Inventory is ` 6,00,000. Current Ratio is 4 : 1. Find out the Current Liabilities.
Answer:
Current ratio= Current assets/Current liabilities=4/1
Quick ratio= Quick assets/Current liabilities=2.5/1
Let the Current Liabilities be = x
Current Assets = 4x
Quick Assets = 2.5x
Stock = Current Assets − Quick Assets
6,00,000 = 4x − 2.5x
or, x = 4,00,000
Current Liabilities = x = ` 4,00,000
Question 27:
Current Assets of a company is are ` 5,00,000. Its Current Ratio is 2.5 : 1 and Quick Ratio is 1 : 1. Calculate value of Current Liabilities, Liquid Assets and Inventory.
Answer:
Current ratio= Current assets/Current liabilities=2.5/1
Quick ratio= Liquid assets/Current liabilities=1/1
Current Assets = 5,00,000
Current ratio= Current assets/Current liabilities=5,00,000/2.5=2,00,000
Liquid Assets = Current Liabilities × 1 = 2,00,000
Inventory = Current Assets − Quick Assets
= 5,00,000 − 2,00,000 = 3,00,000
Question 28:
Working Capital ` 3,60,000; Total :Debts ` 7,80,000; Long-term Debts ` 6,00,000; Inventories ` 1,80,000. Calculate Liquid Ratio.
Answer:
Current Liabilities = Total Debts − Long-term Debts
= 7,80,000 − 6,00,000 = 1,80,000
Current Assets = Current Liabilities + Working Capital
= 1,80,000 + 3,60,000 = 5,40,000
Quick Assets = Current Assets − Stock
= 5,40,000 − 1,80,000 = 3,60,000
Current ratio= Quick assets/Current liabilities=3,60,000/1,80,000=2:1
Question 29: Calculate Quick Ratio from the following:
Working Capital `4,00,000; Total Debts `18,00,000; Non-Current Liabilities `16.00,000; Inventories `1,90,000; Prepaid Expenses `10,000.
Answer:
Quick Ratio= Quick Assets/ Current Liabilities
Quick Ratio= 4,00,000/2,00,000=2:1
Current Liabilities= Total Debts `(18,00,000) - Non-Current Liabilities `(16.00,000)=12,00,000
Current Assets= Current Liabilities - Working Capital
6,00,000=2,00,000+4,00,000
Quick Assets= Current Assets-(Inventories+ Prepaid Expenses)
4,00,000= 6,00,000-(1,90,000+10,000)
Question 30:
Quick Ratio of a company is 2:1. State giving reasons, which of the
following transactions would (i) improve, (ii) reduce, (iii) Not change the
Quick Ratio:
(a) Purchase of goods for cash; (b) Purchase of goods on credit; (c) Sale of
goods (costing `20,000) for `20,000;
(d) Sale of goods (costing `20,000) for `22,000;
(e) Cash received from Trade Receivables.
Answer:
Quick Ratio = 2:1
Let Quick Assets be = ` 40,000
Current Liabilities = ` 20,000
(a) Purchase of goods for Cash- Reduce
Reason: This transaction will result decrease in cash and increases in stock. Liquid Asset will decrease due payment for goods purchased.
Example: Purchase of goods ` 10,000 for cash
Quick Assets = 40,000 − 10,000 (Cash) = ` 30,000
Quick ratio (After purchase of Assets)= (40,000-10,000)/20,000=1.5:1
(b) Purchase of goods on Credit- Reduce
Reason: Purchase of goods on credit will result increase in Current Liabilities and no change in Quick Assets.
Example: if Purchase of goods on Credit `10,000
Current Liabilities = 20,000 + 10,000 (Creditors) = `30,000
Quick ratio (After purchase of goods on credit)= 40,000/(20,000+10,000)=1.33:1
(c) Sale of goods for ` 20,000- Improve
Reason: Sale of goods will result in increase in Quick Assets by the amount of ` 40,000 in the form of either in cash or debtor. This transaction will result no change in current liabilities.
Quick ratio (After sale of goods)= (40,000+20,000)/20,000=3:1
(d) Sale of goods costing ` 20,000 of or ` 22,000- Improve
Reason: This transaction will increase the Quick Assets by ` 22,000 in the form of either in cash or debtors but no effect on the Current Liabilities.
Quick Assets after sale of goods = 40,000 + 22,000 = ` 62,000
Quick Ratio after sale of goods= (40,000+22,000)/20,000=3.1:1
(e) Cash received from debtors- No change
Reason: This transaction results increase in one quick asset in the form of cash and decrease in other quick asset in the form of debtor with equal amount. Therefore it result in no change in the total of Quick Assets.
Example: Cash received from debtors `10,000
Quick Assets = 40,000 + 10,000 (Cash) − 10,000 (Debtors) = 40,000
Quick ratio (After cash received from debtors)
= (40,000-10,000+10,000)/20,000=2:1
Ts Grewal Solution 2024-2025
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Class 12 / Volume – III
Chapter 3 – Accounting Ratio