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 \rupee10,000 for \rupee12,000
• B. Cash collected from trade receivables \rupee41,000
• C. Purchase of goods for cash \rupee38,000
• D.

Hint:

To determine the impact on the quick ratio, analyze changes in liquid assets (like cash and receivables) relative to current liabilities, while ignoring inventory.

Answer 1

The Correct Option is C

The quick ratio is calculated as: \[ \text{Quick Ratio} = \frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}. \] For a decrease in the quick ratio, the numerator (current assets minus inventory) needs to decrease. - Sale of goods costing \rupee10,000 for \rupee12,000: This will increase cash and decrease inventory by \rupee10,000, but the quick ratio should increase. - Cash collected from trade receivables \rupee41,000: This will increase cash, which increases the numerator and thus the ratio increases. - Purchase of goods for cash \rupee38,000: This will reduce cash, decreasing the numerator, and hence, the quick ratio will decrease. - Creditors were paid \rupee11,000: This will reduce liabilities, which will increase the ratio. Thus, the correct answer is (C) Purchase of goods for cash \rupee38,000.