Loading Tutorstips...
✦ FREE LEARNING — CLASS 11 & 12 — CBSE · PSEB — ACCOUNTS · ECONOMICS · BST ✦
Following is the Balance Sheet of Crescent Chemical Works Limited as at 31st March, 2021:
| Particulars | Note No. | Amount (₹) |
|---|---|---|
| I. EQUITY AND LIABILITIES | ||
| 1. Shareholders’ Funds | ||
| (a) Share Capital | 70,000 | |
| (b) Reserves and Surplus | 35,000 | |
| 2. Non-Current Liabilities — Long-term Borrowings | 25,000 | |
| 3. Current Liabilities | ||
| (a) Short-term Borrowings | 3,000 | |
| (b) Trade Payables (Creditors) | 13,000 | |
| (c) Short-term Provisions: Provision for Tax | 4,000 | |
| Total | 1,50,000 | |
| II. ASSETS | ||
| 1. Non-Current Assets | ||
| (a) Fixed Assets (Tangible) | 45,000 | |
| (b) Non-Current Investments | 5,000 | |
| 2. Current Assets | ||
| (a) Inventories (Stock) | 50,000 | |
| (b) Trade Receivables (Debtors) | 30,000 | |
| (c) Cash and Cash Equivalents | 20,000 | |
| Total | 1,50,000 | |
Compute the Current Ratio and Liquid Ratio.
Current Assets = Inventory + Trade Receivables + Cash and Cash Equivalents = 50,000 + 30,000 + 20,000 = ₹1,00,000
Current Liabilities = Short-term Borrowings + Trade Payables + Provision for Tax = 3,000 + 13,000 + 4,000 = ₹20,000
Quick Assets = Trade Receivables + Cash and Cash Equivalents = 30,000 + 20,000 = ₹50,000
Current Ratio = Current Assets ÷ Current Liabilities = 1,00,000 ÷ 20,000 = 5:1
Quick (Liquid) Ratio = Quick Assets ÷ Current Liabilities = 50,000 ÷ 20,000 = 2.5:1
Comments:
1. The ideal Current Ratio for a business is considered to be 2:1, but here it is quite high at 5:1. This may be due to: (i) blockage of funds in Stock; (ii) a high amount outstanding from Debtors; (iii) huge Cash and Bank balances.
2. The ideal Quick Ratio is considered to be 1:1. Here, at 2.5:1, it indicates that Liquid Assets are quite high in comparison to Current Liabilities.
Accounting & Commerce Educator
Sarbjit Singh holds a B.Com and M.Com degree and has over 12 years of teaching experience in double entry bookkeeping, financial accounting, and business studies.
This guide covers "T.S. Grewal Class 12 Vol 3 Chapter 4 Q.36 - Accounting Ratios", focusing on key definitions, step-by-step concepts, applications, and revision guidelines relevant to Chapter 4 - Accounting Ratios.
It is primarily curated for Class 11 and Class 12 high school commerce, accounting, and economics students, as well as aspirants preparing for board exams or CA Foundation.
You can take our custom-built interactive practice quiz directly on this page to test your understanding of "T.S. Grewal Class 12 Vol 3 Chapter 4 Q.36 - Accounting Ratios" instantly.