CS Executive · Corporate Accounting and Financial Management · Financial Statement Analysis
Current ratio of a firm is 2.5:1 and quick ratio is 1.5:1. Current liabilities are ₹4,00,000. What is the value of inventory (assume no prepaid expenses)?
Inventory is ₹4,00,000. Current assets are 2.5 times current liabilities, giving ₹10,00,000, and quick assets are 1.5 times, giving ₹6,00,000. Inventory is the difference between the two, since no prepaid expenses exist.
- A₹4,00,000Correct
- B₹6,00,000
- C₹10,00,000
- D₹2,00,000
Explanation
Current assets = 2.5 × 4,00,000 = ₹10,00,000. Quick assets = 1.5 × 4,00,000 = ₹6,00,000. Inventory = 10,00,000 − 6,00,000 = ₹4,00,000. ₹6,00,000 is the quick assets figure, not inventory.
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