Question

Quick ratio of Megamart Ltd. is 1.5:1. Which of the following transactions will result in a decrease in this ratio?

• A. Sale of goods costing \rupee 10,000 for \rupee 12,000.
• B. Cash collected from trade receivables \rupee 41,000.
• C. Purchase of goods for cash \rupee 38,000.
• D. Creditors were paid \rupee 11,000.

Hint:

Quick assets include current assets excluding inventory and prepaid expenses. Transactions impacting these assets or current liabilities affect the quick ratio.

Answer 1

The Correct Option is C

The quick ratio is calculated as: \[ \text{Quick Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}} \] When goods are purchased for cash, quick assets (cash) decrease, but current liabilities remain unaffected. This results in a decrease in the quick ratio. Other options either do not impact the quick ratio or increase it.