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Current ratio

tirthesh shah (student) (125 Points)

02 November 2011

whether deposits with excise,customs etc should be considered in computation of current ratio as these funds are trfd in order to facilitate the smooth flow of operations and are not readily convertible into cash for short term financial arrangements

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8 Replies

CA Sripal Jain (Associate Finance) (709 Points)
Replied 02 November 2011

no they are not used in current ratio, they r always ignored ,the logic behind ignoring is firm donot have access to this funds as and when they requires ,they donot provide any cushion to payables of the organisation and hence ignored by bankers or credit managers generally

valji (Accounts manager-MBA) (2150 Points)
Replied 02 November 2011

it is consider in C.A ratio

also check view of others

Hemanth Sai (CA-FINAL,AUDIT TRAINEE) (110 Points)
Replied 02 November 2011

It should be included in computation of current ratio if it is realizable.

current ratio is used to calculate the available assets to the liabilities

For example, if WXY Company's current assets are Rs.50,000,000 and its current liabilities are Rs.40,000,000, then its current ratio would be Rs.50,000,000 divided by Rs.40,000,000, which equals 1.25. It means that for every Ruppe the company owes in the short term it has Rs.1.25 available in assets that can be converted to cash in the short term.

It does not relate with its immideate encashability.

CA Sripal Jain (Associate Finance) (709 Points)
Replied 02 November 2011

if your asking from bankers point of view it is not.....anyways lets wait for others opinion

Hemanth Sai (CA-FINAL,AUDIT TRAINEE) (110 Points)
Replied 02 November 2011

is my opinion ri8 if not from banker's point of view???

CA Sripal Jain (Associate Finance) (709 Points)
Replied 02 November 2011

i think no...coz it is normally not included strictly speaking frm practical point of view...plzz dnt ask frm our books angle..coz i dont knw much hehhe