Current Assets Rs4 00 000 Current Liabilities Rs2 00 000 and Inventory is Rs50 000 Liquid Ratio will...........

Current Assets Rs4,00,000; Current Liabilities Rs2,00,000 and Inventory is Rs50,000. Liquid Ratio will be :

2 : 1

2.25 : 1

4 : 7

1.75 : 1

- To calculate the Liquid Ratio (also known as the Quick Ratio), use this formula:

Liquid Ratio = (Current Assets - Inventory) / Current Liabilities

- Given:

- Current Assets = Rs 4,00,000

- Current Liabilities = Rs 2,00,000

- Inventory = Rs 50,000

- Plug these values into the formula:

- Liquid Ratio = (4,00,000 - 50,000) / 2,00,000

- Liquid Ratio = 3,50,000 / 2,00,000

- Liquid Ratio = 1.75 : 1

- Explanation of options:

- Option 1: 2 : 1 indicates that current assets (excluding inventory) are twice the current liabilities.

- Option 2: 2.25 : 1 suggests slightly better liquidity.

- Option 3: 4 : 7 is incorrect as liquid ratio should logically be above 1 if inventory is excluded.

- Option 4: 1.75 : 1 is the calculated ratio, indicating good liquidity.

- Option 4: 1.75 : 1 is correct.

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