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CA Intermediate · Financial Management and Strategic Management · Financial Analysis and Planning - Ratio Analysis

Aarav Ltd has current assets of Rs 6,00,000, inventory of Rs 1,80,000, prepaid expenses of Rs 20,000 and a current ratio of 2:1. What is its quick ratio, treating quick assets as current assets less inventory and prepaid expenses?

Current liabilities are Rs 3,00,000 from the 2:1 current ratio. Quick assets are 6,00,000 less 1,80,000 inventory and 20,000 prepaid expenses, giving Rs 4,00,000. The quick ratio is therefore about 1.33:1, so the stated key is not reliable.

  1. A1.40:1
  2. B1.00:1Correct
  3. C1.30:1
  4. D2.00:1

Explanation

Current liabilities = 6,00,000/2 = 3,00,000. Quick assets = 6,00,000 - 1,80,000 - 20,000 = 4,00,000. Quick ratio = 4,00,000/3,00,000 = 1.33:1. Hence none of the options... recheck: 4,00,000/3,00,000 = 1.33.

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