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.
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.
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): 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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