Question

The Balance Sheet of Glassworks Ltd. as at 31^st March, 2015 is given below:

Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
Share Capital	10	Goodwill	6
Reserves and Surplus	3	Fixed Assets	12.60
P&L Account	2.50	Investments (short-term)	1
Secured Loans	8	Stock	3.60
Creditors	2.50	Debtors	2.40
Bank Overdraft	1.50	Advances	0.50
Provision for Taxation	0.50	Cash in Hand	0.90
		Cash at Bank	1
	28		28

Answer 1

(a) Current Ratio = Current Assets / Current Liabilities

= 9.4/4.5 = 2.09

As compared to the ideal 2:1, a ratio of 2.09 indicates better liquidity position of the company. 

(b) Liquid Ratio = Liquid Assets / Current Liabilities 

= 5.8 /4.5= 1.29

Alternatively, the bank overdraft can be deducted from current liabilities to calculate quick liabilities. The answer in this case will be:

= 5.8/ 3 = 1.93

(c) Absolute Liquidity Ratio = Absolute Liquid Assets / Current Liabilities 

= 2.9 / 4.5 = 0.64.