Question

A business has a current ratio of 3 : 1 and quick ratio of 1.2 : 1. If working capital is ₹ 1,80,000, calculate total current assets and inventory.

Answer 1

Current ratio = `("Current assets")/("Current Liabilities") = 3/1`

Let the ratio be "X"

When current assets is 3x then current liabilities will be X

Working capital = Current assets − Current liabilities

Working capital = 3x − X = 1,80,000

2x = 1,80,000

X = 90,000

Current Liabilities = ₹ 90,000

Current assets = 3x = 3 × 90,000

= ₹ 2,70,000

Quick ratio = `("Quick assets")/("Current Liabilities")`

= `("(Current assets - Inventory)")/("Current Liability")`

1.2 : 1 = `("(Current assets - Inventory)")/("Current Liability")`

1.2 : 1 = `("(2,70,000 - Inventory)")/("90,000")`

90,000 × 1.2 = 2,70,000 − Inventory

1,08,000 + Inventory = 2,70,000

Inventory = ₹ 1,62,000