Question : Assertion (A): Current Assets/Current Liabilities is the formula for calculating the current ratio Reason (R): The current ratio is derived by dividing current assets by current liabilities. Current assets are made up of spare parts, loose tools, and stores.
Option 1: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Option 2: Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
Option 3: Assertion (A) is true but Reason (R) is False
Option 4: Assertion (A) is False and Reason (R) is False.
Correct Answer: Assertion (A) is true but Reason (R) is False
Solution : By dividing current assets by current liabilities, the current ratio is determined. Because they are not held with the intention of being converted into cash and cash equivalents, loose tools, stores, and spares are excluded from current assets for determining liquidity ratios. Hence option 3 is the correct answer.
Question : Assertion (A): Current Ratio is calculated by dividing liquid assets by current liabilities and current assets include loose tools, stores, and spares, and provision for doubtful debts. Reason (R): The formula for the Current Ratio is Current Assets/Current Liabilities.
Question : Assertion (A): The ratio that results from dividing current assets by current liabilities is known as the liquid ratio. Reason (R): Liquid Assets/Current Liabilities is the formula for calculating the liquid ratio.
Question : Assertion (A): Current Liabilities are calculated by subtracting Working Capital from Current Assets. Reason (R): Working Capital = Current Assets – Current Liabilities
Question : Assertion (A): If working capital is 2,40,000, current assets are 4,000,00, which includes 2,000 in inventory. There will be a current ratio of 2.5:1. Reason (R): Current Ratio = Current Assets/Current Liabilities
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