Question : Inventory is excluded from liquid assets because :
Option 1: there is uncertainty whether it will be sold or not and at what price it will be sold;
Option 2: it will take time before it is converted into trade receivables and cash.
Option 3: Both 1 and 2
Option 4: Neither 1 nor 2
Correct Answer: Both 1 and 2
Solution :
Answer =
Both 1 and 2
Inventory is excluded from liquid assets because both a) there is uncertainty regarding its sale and selling price, and b) it takes time to convert into trade receivables and cash. Thus, both reasons contribute to the exclusion of inventory from liquid assets. Inventories and Pre-Paid Expenses are excluded from liquid Assets because it takes time before inventory can be converted into cash.
Hence, the correct option is 3.
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