Question

X Ltd. has a current ratio of 3.5:1 and quick ratio of 2:1. If excess of current assets over quick assets represented by Inventory is Rs.24,000, calculate current assets and current liabilities.

Answer 1

Current Ratio = 3.5:1

Quick Ratio = 2:1

Let Current Liabilities = x

Current Assets = 3.5x And

Quick Assets = 2x

Inventory = Current Assets – Quick Assets

24,000 = 3.5 x – 2x

24,000 = 1.5x

x = Rs.16,000

Current Assets = 3.5x = 3.5 x Rs.16,000 = Rs.56,000.

Verification : Current Ratio = Current Assets : Current Liabilities

= Rs.56,000 : Rs.16,000

= 3.5 : 1

Quick Ratio = Quick Assets : Current Liabilities

= Rs.32,000 : Rs.16,000

= 2:1