Question

Following is the statement of financial position of Niraula Company Ltd. in Nepal at December 31,...

  1. Following is the statement of financial position of Niraula Company Ltd. in Nepal at December 31, 2018. Determine the current ratio of Niraula Company Ltd. at the end of 2018 and give your evaluation on the company’s short-term liquidity. (Currency in thousand Rs, Nepalese rupee) (20%)

Niraula Company Ltd.

Statement of Financial Position

December 31, 2018

Intangibles and other assets                                                            Rs 530

Property, plant, and equipment                                                           420

Investments                                                                                           10

Current assets

Prepaid expenses                                              Rs 120

Inventory                                                            430

Accounts receivable (net)                                     470

Cash and cash equivalents                                  330                 1,350

Total assets                                                                                     Rs 2,310

Equity                                                                                               Rs 1,020

Non-current liabilities                                                                            390

Current liabilities                                                                                   900

Total equity and liabilities                                                             Rs 2,310

Homework Answers

Answer #1

Prepaid expenses = Rs 120

Inventory = Rs 430

Accounts receivable (net) = Rs 470

Cash and cash equivalents = Rs 330

Current assets = Prepaid expenses + Inventory + Accounts receivable (net)+ Cash and cash equivalents

= 120+430+470+330

= Rs 1,350

Current liabilities = Rs 900

Current ratio =  Current assets/ Current liabilities

= 1,350/900

= 1.5: 1

Current ratio is 1.5:1. Ideal current ratio is 2:1, hence short term liquidity position of the company is not good.

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