CA Intermediate · Financial Management and Strategic Management · Financial Analysis and Planning - Ratio Analysis
Kaveri Ltd has current ratio 2.5:1 and quick ratio 1.5:1. Its current liabilities are Rs 6,00,000. What is the value of its inventory (assuming no prepaid expenses)?
Inventory is Rs 6,00,000. Current assets are 2.5 times Rs 6,00,000, which is Rs 15,00,000, and quick assets are 1.5 times, which is Rs 9,00,000. Inventory is the difference between the two, since there are no prepaid expenses.
- ARs 3,00,000
- BRs 6,00,000Correct
- CRs 9,00,000
- DRs 15,00,000
Explanation
Current assets = 2.5 x 6,00,000 = 15,00,000. Quick assets = 1.5 x 6,00,000 = 9,00,000. Inventory = 15,00,000 - 9,00,000 = 6,00,000. Rs 9,00,000 is the quick assets figure, not inventory.
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