Question 12 Chapter 4 of +2-B - USHA Publication 12 Class

Question 12 Chapter 4 of +2-B

I. Liquidity Ratios

12. (Current Ratio & Quick Ratio & Conclusion) Following is the balance sheet of XYZ Ltd. As of 31st March 2018.

Balance Sheet
Particular	Note No.	₹
I. Equity and Liabilities
Shareholders’ Funds
Equity Share Capital		24,000
2,400 shares of ₹10 each fully paid up
Reserves and Surplus
Statement of Profit and Loss		6,000
Non-Current Liabilities
Long-term Borrowing :
10% Debentures		15,000
Current Liabilities
Trade Payable		23,400
Provisions
Provision for Taxation		600
		69,000
II. Assets :
Non-Current Assets
Tangible Assets
Machinery and Equipment		45,000
Current Assets
Inventory		12,000
Trade Receivable		9,000
Prepaid Expenses		720
Cash at Bank		2,280
		69,000

The solution of Question 12 Chapter 4 of +2-B: –

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Current Assets	=	Inventory + Trade Receivable + Prepaid Expenses + Cash at Bank
	=	₹ 12,000 + ₹ 9,000 + ₹ 2,280 + ₹ 720
Current Assets	=	₹ 24,000

Current Liabilities	=	Trade payable Provision for taxation
	=	₹ 23,400 + ₹ 600
Current Liabilities	=	₹ 24,000

Current Ratio=	Current Assets
	Current Liabilities

Current Ratio	=	₹ 24,000
Current Ratio	=	₹ 24,000

	=	1: 1

Quick Assets	=	Trade receivables + Cash
	=	₹ 9,000 + ₹ 2,280
Quick Assets	=	₹ 11,280
Current Liabilities	=	₹ 24,000

Quick Ratio	=	Quick Assets
Quick Ratio	=	Current Liabilities

	=	₹ 11,280
	=	₹ 24,000

Quick Ratio	=	0.47 : 1

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Conclusion:-
Current Ratio (1:1)
The situation is not good because the current assets are equal or sufficient to pay current liabilities.
Liquid Ratio
This is also no so good because there is not margin in liquid assets for the current liabilities of the business.

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What are Liquidity Ratios – Formulas and Examples

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Chapter No. 8 – Company Accounts (Share Capital)

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Chapter No. 14 – Accounting Ratios

Chapter No. 15 – Cash Flow Statement

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