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SSC Financial and Cost Accounting P-1 QUESTION #6050
Question 1

Given: Quick (acid-test) ratio $= 2.0$; Current assets $= \text{Rs. }5{,}000$; Inventory $= \text{Rs. }2{,}000$; Prepaid expenses $= 0$. Find the value of current liabilities.

  • Rs. 1,500✔️
  • Rs. 2,500
  • Rs. 3,500
  • Rs. 6,000
Correct Answer Explanation

The Quick Ratio formula is:

$\text{Quick Ratio} = \dfrac{\text{Current Assets} - \text{Inventory} - \text{Prepaid Expenses}}{\text{Current Liabilities}}$

$2.0 = \dfrac{5{,}000 - 2{,}000 - 0}{\text{CL}} = \dfrac{3{,}000}{\text{CL}}$

$\text{CL} = \dfrac{3{,}000}{2.0} = \mathbf{Rs.\ 1{,}500}$

The quick ratio excludes inventory and prepaid expenses from current assets since these are less liquid. Dividing quick assets by the ratio gives current liabilities.