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Question
A company has a Quick Ratio of 1.8 : 1. Mention whether this ratio will improve/reduce/not change after it sells a machine worth ₹ 1,20,000 at a loss of ₹ 30,000.
Solution
Quick Ratio = 1.8 : 1
Quick Ratio = `("Quick Assets")/("Current Liabilities")`
On selling a machine worth ₹ 1,20,000 at a loss of ₹ 30,000, the cash will increase by ₹ 90,000
(1,20,000 − 30,000)
Let say, Quick assets are ₹ 1,80,000 and Current liabilities are ₹ 1,00,000. With selling of machine, the quick assets will increase as cash increases, ₹ 1,80,000 + ₹ 90,000 = ₹ 2,70,000 but, no change in current liabilities.
New Quick ratio = `(2,70,000)/(1,00,000)`
= 2.7 : 1
Thus, Quick ratio will Improve.
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