Question

From the following information obtained from the books of accounts of Ananda Ltd., calculate 'Quick Ratio' of the company: Total Current Assets (including stock and prepaid expenses) ₹ 2,00,000; Stock ₹ 20,000; Prepaid expenses ₹ 10,000; Current liabilities ₹ 1,70,000.

• A. 20 : 17
• B. 1 : 1
• C. 18 : 17
• D. 19 : 17

Hint:

Quick Ratio (Acid-Test Ratio) = (Current Assets - Stock - Prepaid Expenses) / Current Liabilities
A quick ratio of 1 : 1 is considered satisfactory as it indicates the company can meet its current liabilities from its quick assets.

Answer 1

The Correct Option is B

We need to calculate the Quick Ratio (also known as Acid-Test Ratio or Liquid Ratio) for Ananda Ltd.
Step 1: Recall the formula for Quick Ratio.
\[ \text{Quick Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}} \] Quick Assets = Current Assets - (Stock + Prepaid Expenses) Quick assets are those current assets that can be converted into cash quickly without much loss. Stock and prepaid expenses are excluded because:

• Stock may not be readily convertible into cash
• Prepaid expenses cannot be converted into cash at all

Step 2: Calculate Quick Assets.
Given:

• Total Current Assets = ₹ 2,00,000
• Stock = ₹ 20,000
• Prepaid Expenses = ₹ 10,000

\[ \text{Quick Assets} = 2,00,000 - (20,000 + 10,000) \] \[ \text{Quick Assets} = 2,00,000 - 30,000 = ₹ 1,70,000 \] Step 3: Identify Current Liabilities.
Given: Current Liabilities = ₹ 1,70,000 Step 4: Calculate Quick Ratio.
\[ \text{Quick Ratio} = \frac{1,70,000}{1,70,000} = 1 \] In ratio form, 1 : 1 Step 5: Analyze each option.

• (A) 20 : 17 = 1.176 : 1 ✗
• (B) 1 : 1 = 1 : 1 ✓ Correct
• (C) 18 : 17 = 1.058 : 1 ✗
• (D) 19 : 17 = 1.117 : 1 ✗

Final Answer: (B) 1 : 1