Cash Balance ₹15,000; Trade Receivables ₹35,000; Inventory ₹40,000; Trade Payables ₹24,000 and Bank Overdraft is ₹6,000. Current Ratio will be :a.`3 : 1b.`3.75 : 1c.`1 : 3.75d.`1 : 3
Question
Cash Balance ₹15,000; Trade Receivables ₹35,000; Inventory ₹40,000; Trade Payables ₹24,000 and Bank Overdraft is ₹6,000. Current Ratio will be :a.3 : 1b.3.75 : 1c.1 : 3.75d.1 : 3
Solution
To calculate the current ratio, we need to divide the total current assets by the total current liabilities.
Total current assets = Cash Balance + Trade Receivables + Inventory Total current liabilities = Trade Payables + Bank Overdraft
Given: Cash Balance = ₹15,000 Trade Receivables = ₹35,000 Inventory = ₹40,000 Trade Payables = ₹24,000 Bank Overdraft = ₹6,000
Total current assets = ₹15,000 + ₹35,000 + ₹40,000 = ₹90,000 Total current liabilities = ₹24,000 + ₹6,000 = ₹30,000
Current Ratio = Total current assets / Total current liabilities Current Ratio = ₹90,000 / ₹30,000
Simplifying the ratio, we get: Current Ratio = 3 : 1
Therefore, the correct answer is option a. `3 : 1.
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