Following is the Balance sheet opf Why Limited as at 31st March, 2019:

Calculate:
(i) Current Ratio, and , (ii) Liquid Ratio
What concluisions do you draw about the company on the basis of these ratios?

Explanation

(i) Current Ratio =`("Current Assets")/("Current Liabilities")`
`=("Inventories+Trade Reaciables +Cash and Cash Equivalents+Prepaid Expenses")/("Trade Payables+Short-term Provisions")`
`=(Rs 120000+Rs 90000+Rs 228000+ Rs 7200)/(234000+Rs 6000)=(Rs 240000)/(Rs 240000)=1:1`
Normally,current assets should be twice the current liabilites .In this case, current assets are equal to the curent liabilities .Hence short-term financial position of the company is not satisfactory. It may not be able to meet its current liabilities promptly.
(ii) Liquid Rotio = `("Liquid Assets")/("Current Liabilities")=("Trade Receiveables +cash and cash Equivalents")/("Trade Payavbles +short-term provisions")`
`=(Rs 90000+Rs 22800)/(Rs 2,34000+Rs 6000)=(Rs 112800)/(Rs 240000)=0.47:1`
If Liquid Ratio is 1:1 onlye then the position can be said to be stisfactory .In this case it is less than half hence liquidity position of the company is not satisfactory.
Note Analysis and comments are not in syllabus .These have been given for better understanding and being helpful in prepartion of projects.