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.
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 true.
Correct Answer: Assertion (A) is False and Reason (R) is true.
Solution :
The Quick Ratio, commonly referred to as the Acid-test or Liquidity ratio assesses a company's capacity to meet its short-term obligations by identifying the proportion of its assets that can be quickly converted into cash.
The liquid ratio is calculated using the formula Liquid Assets/Current Liabilities.
Hence option 4 is the correct answer.
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