Question

From the details given below, calculate:

(i) Quick Ratio

(ii) Working Capital Turnover Ratio

Trade Receivables	Rs 5,00,000
Inventory	Rs 2,40,000
Marketable Securities	Rs 1,20,000
Cash	Rs 80,000
Prepaid Expenses	Rs 60,000
Bills Payable	Rs 1,20,000
Sundry Creditors	Rs 2,40,000
Expenses Payable	Rs 1,40,000
Debentures	Rs 3,00,000
Revenue from Operations	Rs 24,00,000

Hint:

Quick assets = 7,00,000 and current liabilities = 5,00,000, so quick ratio = 1.4:1. Working capital = 10,00,000 - 5,00,000 = 5,00,000, so turnover = 24,00,000/5,00,000 = 4.8 times.

Answer 1

Step 1: Sort the items:
Quick assets are current assets that can turn into cash fast. Inventory and prepaid expenses are left out.
Current liabilities here are Bills Payable, Sundry Creditors and Expenses Payable.
Debentures of Rs. 3,00,000 are a long-term liability, so they are not part of current liabilities.

Step 2: Part (i): Quick Assets:
Quick Assets = Trade Receivables + Marketable Securities + Cash.
= 5,00,000 + 1,20,000 + 80,000 = Rs. 7,00,000.

Step 3: Part (i): Current Liabilities:
Current Liabilities = Bills Payable + Sundry Creditors + Expenses Payable.
= 1,20,000 + 2,40,000 + 1,40,000 = Rs. 5,00,000.

Step 4: Part (i): Quick Ratio:
Quick Ratio = Quick Assets / Current Liabilities = 7,00,000 / 5,00,000 = 7:5, or 1.4:1.

Step 5: Part (ii): Working Capital:
Current Assets = Quick Assets + Inventory + Prepaid Expenses.
= 7,00,000 + 2,40,000 + 60,000 = Rs. 10,00,000.
Working Capital = Current Assets - Current Liabilities = 10,00,000 - 5,00,000 = Rs. 5,00,000.

Step 6: Part (ii): Working Capital Turnover Ratio:
Working Capital Turnover Ratio = Revenue from Operations / Working Capital.
= 24,00,000 / 5,00,000 = 4.8 times.

Final Answer:
(i) Quick Ratio = 7:5 (1.4:1). (ii) Working Capital Turnover Ratio = 4.8 times.