T.S. Grewal Class 12 Vol 3 Chapter 4 Q.30 - Accounting Ratios

Question 30

Quick Ratio of Z Ltd. is 1:1. State, with reason, which of the following transactions would (i) Increase, (ii) Decrease, or (iii) Not change the ratio:
(a) Included in the Trade Payables was a bill payable of ₹3,000 which was met on maturity.
(b) Debentures of ₹50,000 were converted into equity shares.
(CBSE 2014)

Solution

Transaction	Impact
Paid a Bills Payable of ₹3,000 on maturity	No Change — as cash goes out, Quick Assets decrease by ₹3,000, and Current Liabilities decrease by the same ₹3,000; since the ratio starts at 1:1 (Quick Assets = Current Liabilities), an equal decrease to both leaves the ratio at 1:1.
Converted Debentures of ₹50,000 into Equity Shares	No Change — Debentures and Equity Share Capital are both Non-Current items, neither forming part of Quick Assets or Current Liabilities.