30 :- Quick Ratio of Z Ltd is 1:1. State, with reason, which of the following transactions would (i) Increase (ii) Decrease or (iii) Not change the ratio:
(a) Included in the Trade Payables was bill payable of Rs 3,000 which was met on maturity;
(b) Debentures of Rs 50,000 were converted into equity shares.
Solution :-
Let’s assume Quick Assets be Rs 1,00,000 and Current Liabilities be Rs 1,00,000
Quick Ratio = Quick Assets/Current Liabilities
= 1,00,000/1,00,000
= 1 : 1
(a) Included in the Trade Payables was Bills Payable of Rs 3,000 which was met on maturity
Quick Ratio = 1,00,000 – 50,000/1,00,000 – 50,000
= 50,000/50,000
= 1 : 1 (No Change)
There is no change in Quick Ratio as it decreases both Quick assets and Current Liabilities with the same amount.
(b) Debentures of Rs 50,000 were converted into equity shares.
Quick Ratio = 1,00,000/1,00,000
= 1 : 1 (No Change)
There will be no change in Quick Ratio as it does not change Quick Assets and Current Liabilities either.
Note : Debentures is a part of Long – term Borrowings and Equity shares and Shareholder’s Funds.