S1: The Current Ratio measures long-term solvency. S2: The Debt-Equity Ratio measures short-term liquidity. Which statement(s) is/are correct? MCQ with Answer and Explanation
S1: The Current Ratio measures long-term solvency. S2: The Debt-Equity Ratio measures short-term liquidity. Which statement(s) is/are correct?
A. Neither S1 nor S2
B. Both S1 and S2
C. S2 only
D. S1 only
Answer: Option A
Solution (By JKSSB Mock Tests)
The Current Ratio measures short-term liquidity, not long-term solvency. The Debt-Equity Ratio measures long-term solvency, not short-term liquidity. Both statements have swapped the definitions. Both are incorrect.
Explanation:
Loose tools and spares are generally excluded from current assets while calculating liquidity ratios because they cannot be easily converted into cash to pay off liabilities.
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