Multiple Choice Questions on A Company rsquo s Current Ratio is 2 8 1 Current Liabilities are Rs 2 00 000 Inventory is Rs 1 50 00........... for UPSC EPFO Exam Preparation

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Multiple Choice Questions

A Company rsquo s Current Ratio is 2 8 1 Current Liabilities are Rs 2 00 000 Inventory is Rs 1 50 00...........

General Accounting Principles Ratio analysis 
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    A Company’s Current Ratio is 2.8 : 1; Current Liabilities are Rs 2,00,000; Inventory is Rs 1,50,000 and Prepaid Expenses are Rs 10,000. Its Liquid Ratio will be :

    3.6 : 1

    Incorrect Answer

    2.1 : 1

    Incorrect Answer

     2 : 1

    Correct Answer

    2.05 : 1

    Incorrect Answer
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    Explanation:
    Q, Current Ratio is 2.8 : 1; Current Liabilities are Rs 2,00,000; Inventory is Rs 1,50,000 and Prepaid Expenses are Rs 10,000
     
    Liquid Ratio =liquid Assets/ current liabilities

                          =  Rs.4,00,000(WN1)

                                Rs.2,00,000{WN2}
                         =  Rs.4,00,000/ Rs,2,00,000
                         = 2 : 1 (answer)
     
    Working note 1 for liquid assets
    liquid assets= current assets - inventory - prepaid expenses= Rs5,60,000- Rs.1,50,000-Rs.10,000=Rs.4,00,000
     
    Working note 2  for current assets
    Current assets  = liquid Assets/ current liabilities
    current Assets = current ratio 
    Current liabilities   
      
              X          =2.8
     Rs. 2,00,000     1
      
    current assets=Rs.2,00,000 * 2.8 =Rs.5,60,000
     

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