Skip to content

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

Sharma Traders has a quick ratio of 1.5:1 and a current ratio of 2.5:1. Its current liabilities are Rs 4,00,000, and its only current assets other than quick assets are inventories. What is the value of inventories?

Inventories are Rs 4,00,000. Current assets are 2.5 times Rs 4,00,000, which is Rs 10,00,000, and quick assets are 1.5 times, which is Rs 6,00,000. Since inventories are the only non-quick current asset, they equal the difference of Rs 4,00,000.

  1. ARs 2,00,000
  2. BRs 4,00,000Correct
  3. CRs 6,00,000
  4. DRs 10,00,000

Explanation

Current assets = 2.5 x 4,00,000 = Rs 10,00,000. Quick assets = 1.5 x 4,00,000 = Rs 6,00,000. Inventories = 10,00,000 - 6,00,000 = Rs 4,00,000. Check: difference of ratios 1.0 x 4,00,000 = 4,00,000. Rs 6,00,000 is wrong as it is the quick assets figure.

Did you get it right without looking?

One question tells you little. A timed set on Financial Analysis and Planning - Ratio Analysis shows your real accuracy, how long you take and where you lose marks.

Practise Financial Analysis and Planning - Ratio AnalysisFree diagnostic mock

More Financial Analysis and Planning - Ratio Analysis questions