CA Intermediate · Financial Management and Strategic Management · Financial Analysis and Planning - Ratio Analysis
Sharma Traders has current liabilities of ₹4,00,000, a current ratio of 2.5 and a quick ratio of 1.5. What is the value of its inventory (assume no prepaid expenses)?
Inventory is ₹4,00,000. Current assets equal 2.5 times ₹4,00,000, which is ₹10,00,000, and quick assets equal 1.5 times ₹4,00,000, which is ₹6,00,000. Inventory is the difference between current assets and quick assets, since there are no prepaid expenses.
- A₹4,00,000Correct
- B₹6,00,000
- C₹10,00,000
- D₹2,50,000
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. Option ₹6,00,000 is the quick assets figure, a wrong base.
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