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CS Executive · Corporate Accounting and Financial Management · Financial Statement Analysis

Reliance Traders has current assets of Rs 6,00,000, which include inventory of Rs 2,00,000 and prepaid expenses of Rs 40,000. Current liabilities are Rs 2,00,000. Treating quick assets as current assets less inventory and prepaid expenses, the quick ratio is:

The quick ratio is 1.8 : 1. Quick assets are current assets of Rs 6,00,000 less inventory of Rs 2,00,000 and prepaid expenses of Rs 40,000, giving Rs 3,60,000, which is divided by current liabilities of Rs 2,00,000.

  1. A1.8 : 1
  2. B3 : 1
  3. C2 : 1Correct
  4. D1.6 : 1

Explanation

Quick assets = 6,00,000 - 2,00,000 - 40,000 = 3,60,000. Quick ratio = 3,60,000 / 2,00,000 = 1.8 : 1. Option 3:1 is the current ratio, and 2:1 deducts only inventory, ignoring prepaid expenses.

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