Final answer:
To calculate the Current Ratio, the total current assets and current liabilities need to be determined. After adding Quick Assets, Inventory, and Prepaid Expenses, the Current Ratio is found to be 2.5, suggesting the company has 2.5 times more current assets than liabilities.
Step-by-step explanation:
To calculate the Current Ratio, we need the total current assets and current liabilities from the information given:
- Quick Assets = 1,50,000
- Inventory (Stock) = 40,000
- Prepaid Expenses = 10,000
- Working Capital (Current Assets - Current Liabilities) = 1,20,000
Since Working Capital equals Current Assets minus Current Liabilities, we can express Current Liabilities as Current Assets minus Working Capital. First, let's find the total Current Assets.
Total Current Assets = Quick Assets + Inventory + Prepaid Expenses
= 1,50,000 + 40,000 + 10,000 = 2,00,000
Now, we will find the Current Liabilities.
Current Liabilities = Current Assets - Working Capital
= 2,00,000 - 1,20,000 = 80,000
Finally, we will calculate the Current Ratio.
Current Ratio = Current Assets / Current Liabilities
= 2,00,000 / 80,000 = 2.5
The Current Ratio is 2.5, indicating that the company has 2.5 times more current assets than current liabilities, which is generally considered a good sign of liquidity.