29 :- Quick Ratio of a company is 2:1. State, giving reasons, which of the following transactions would (i) Improve, (ii) Reduce, (iii) Not Change the Quick Ratio:
(a)Purchase of goods for cash; (b) Purchase of goods on credit; (c) Sale of goods (costing Rs 20,000) for Rs 20,000; (d) Sale of Goods (costing Rs 20,000) for Rs 22,000; (e) Cash Received from Trade Receivables.
Solution :-
Let’s assume Quick Assets be Rs 2,00,000 and Current Liabilities be Rs 1,00,000
Quick Ratio = Quick Assets/Current Liabilities
= 2,00,000/1,00,000
= 2 : 1
(a) Purchase of goods for cash
Let’s assume purchase of goods for cash be Rs 50,000
Quick Ratio = 2,00,000 – 50,000/1,00,000
= 1,50,000/1,00,000
= 1.5 : 1 (Reduces)
It reduces Quick Ratio as Quick Assets (Cash) Decreases and Current Liabilities remains the same.
(b) Purchase of goods on Credit
Let’s assume Purchase of goods on Credit be Rs 50,000
Quick Ratio = 2,00,000/1,00,000 + 50,000
= 2,00,000/1,50,000
= 1.33 : 1 (Reduces)
It reduces Quick Ratio because it increases Current Liabilities (Denominator) and Quick Assets remains the same.
(c) Sale of goods (Costing Rs 20,000) for Rs 20,000
Quick Ratio = 2,00,000 + 20,000/1,00,000
= 2,20,000/1,00,000
= 2.2 : 1 (Improve)
It improves the quick ratio and as it increases Quick Assets and Current Liabilities remains the same.
(d) Sale of goods (costing Rs 20,000)for Rs 22,000.
Quick Ratio = 2,00,000 + 22,000/1,00,000
= 2,22,000/1,00,000
= 2.22 : 1 (Improve)
It improves the quick ratio and as it increases Quick Assets and Current Liabilities remains the same.
(e) Cash received from Trade Receivables
Let’s assume Cash received from Trade Receivables be Rs 50,000
Quick Ratio = 2,00,000 + 50,000 – 50,000/1,00,000
= 2,00,000/1,00,000
= 2 : 1 (No Change)
It does not change Quick Ratio as it increases and decreases Quick asests with same amount and Current Liabilities remains the same.