Current Assets and Current Liabilities are picked out first from the Balance Sheet, and Quick Assets are Current Assets minus Stock and Prepaid Expenses.

Current Assets = 20,000+60,000+80,000+5,000 = 1,65,000. Current Liabilities = 50,000+20,000+5,000 = 75,000. Current Ratio = 1,65,000 ÷ 75,000 = 2.2:1. Quick Assets = 1,65,000 − 80,000 − 5,000 = 80,000. Quick Ratio = 80,000 ÷ 75,000 ≈ 1.07:1.

Step 1 — identify Current Assets and Current Liabilities:

Current Assets = Cash + Debtors + Stock + Prepaid Expenses = 20,000 + 60,000 + 80,000 + 5,000 = ₹1,65,000. (10% Debentures and Shareholders' Fund are long-term, and Fixed Assets is a non-current asset — neither enters this ratio.)

Current Liabilities = Creditors + Bills Payable + Outstanding Expenses = 50,000 + 20,000 + 5,000 = ₹75,000.

Step 2 — Current Ratio:

Current Ratio = Current Assets ÷ Current Liabilities = 1,65,000 ÷ 75,000 = 2.2 : 1.

Step 3 — Quick Assets and Quick Ratio:

Quick Assets = Current Assets − Stock − Prepaid Expenses = 1,65,000 − 80,000 − 5,000 = ₹80,000.

Quick Ratio = Quick Assets ÷ Current Liabilities = 80,000 ÷ 75,000 = 1.0667 : 1 ≈ 1.07 : 1.

Interpretation: a Current Ratio of 2.2:1 is above the conventional 2:1 benchmark, and a Quick Ratio of ≈1.07:1 is above the conventional 1:1 benchmark — on both counts, this firm's short-term liquidity position looks comfortable.

A frequent mistake is including 10% Debentures or Shareholders' Fund (both long-term) or Fixed Assets (non-current) in the Current Ratio calculation. Another common error in the Quick Ratio is subtracting only Stock and forgetting to also subtract Prepaid Expenses from Current Assets.