Question

Calculate Current Ratio and Quick Ratio from the following:
- Current Assets: Rs 2,50,000
- Inventory: Rs 70,000
- Prepaid Expenses: Rs 10,000
- Current Liabilities: Rs 1,00,000

Hint:

Quick Ratio excludes inventory and prepaid expenses because they are not easily convertible into cash.

Answer 1

Step 1: Calculate Current Ratio

\[ \text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}} = \frac{2,50,000}{1,00,000} = 2.5:1 \]

Step 2: Calculate Quick Assets

\[ \text{Quick Assets} = \text{Current Assets} - \text{Inventory} - \text{Prepaid Expenses} \] \[ = 2,50,000 - 70,000 - 10,000 = 1,70,000 \]

Step 3: Calculate Quick Ratio

\[ \text{Quick Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}} = \frac{1,70,000}{1,00,000} = 1.7:1 \]

Final Answer:

Current Ratio: 2.5:1
Quick Ratio: 1.7:1