MCQs · Q8
Q.While computing the Quick (Liquid) Ratio, which TWO items are excluded from Current Assets?
(a) Cash and Bank
(b) Debtors and Bills Receivable
(c) Stock and Prepaid Expenses
(d) Creditors and Bills Payable
Maharashtra MsbshseTextbookSubjectiveImportance★★★★★
32% · 8/25 Questions
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Start your 14-day free trial to unlock the full solution →Quick Assets = Current Assets − Stock − Prepaid Expenses, so the question is testing exactly which two items get subtracted, and why.
- Cash and Bank is wrong — these are the MOST liquid current assets and are always retained in Quick Assets, never excluded.
- Debtors and Bills Receivable is wrong — these are considered 'near-cash' (expected to be realised as cash shortly) and are retained in Quick Assets.
- Stock and Prepaid Expenses is correct — Stock must first be SOLD, and the resulting debt then COLLECTED, before it becomes cash (a two-step, uncertain process), while Prepaid Expenses can never be converted to cash at all, since it represents a service already paid for in advance. Both are therefore excluded when testing IMMEDIATE liquidity. …
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