Question

Which of the following is correct?
i.Liquidity ratios measure long term solvency of a concern.
ii.Inventory is a part of current assets.
iii.Rule of thumb for acid test ratio is 1 : 1.
iv.The amount of gross assets is equal to net capital employed.

• A. (i), (ii) and (iv)
• B. (ii), (iii) and (iv)
• C. (i), (ii), (iii) and (iv)
• D. None of the above

Answer 1

Answer: (B)

(ii), (iii) and (iv)

1. The liquidity ratios measure the ability of a concern to pay off its short term obligations.
2. Inventory is a part of current assets and not liquid assets.
3. Rule of thumb for acid test ratio is $1:1$
4. The amount of gross assets minus the current liabilities is equal to net capital employed.