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Question
O.M. Ltd has a Current Ratio of 3.5 : 1 and Quick Ration of 2 : 1. If the excess of Current Assets over Quick Assets as represented by Stock is Rs 1,50,000, calculate Current Assets and Current Liabilities.
Solution
`"Current ratio" = "Current Assets" / "Current Liabilities" `
or 3.5= `"Current Assets" / "Current Liabilities" `
or, Current Assets = 3.5 Current Liabilities … (1)
`"Quick Ratio"= "Quick Assets"/"Current Liabilities"="Current Stock-Prepaid Expenses"/"Current Liabilities"`
`or,2 3.5 "Current Liabilities-Stock" - "Prepaid Expenses"/"Current Liabilites"`
or, 2 Current Liabilities = 3.5 Current Liabilities − 1,50,000 − 0
or, 1.5 Current Liabilities = 1,50,000
or, Current Liabilities = 1,00,000
or, Current Assets = 3.5 × 1,00,000
or, Current Assets = 3,50,000
∴ Current Assets = 3,50,000
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