Sir one thing, I don't know on what basses do you teach to your student . Sir I respect your profession but don't misuse it. Its my humble request don't spread wrong information. I will say from where did you went wrong . Sir in balance sheet you have written (quick asset ) and absolute liquid asset under the current asset in the balance sheet that is the first mistake. in balance sheet we are not supposed to take quick asset and absolute liquid asset . Just we need mention current asset and non current asset ( fixed asset) in the asset side of the b/s . And second thing is , the item's which you had taken in quick asset and absolute liquid asset is totally wrong . Sir current asset includes : 1 . cash in hand or bank 2. Marketable securities ( short term investment) 3. Debtors 4. Inventory (stock) 5. Prepaid expenses etc This are the above current asset Quick asset includes: 1. Cash or bank 2. Marketable securities 3. Debtors We are eliminating stock and prepaid expenses in quick asset Absolute liquid asset 1. Cash or bank 2. Marketable securities That's it . This is calculate to know the liquidity position of the company . Liquidity means which is easily converted into cash . 1.current ratio : current asset/ current liabilities 2. Quick ratio : quick asset / current liabilities 3. Absolute liquid ratio or cash ratio : absolute liquid asset / current liabilities When we compare to current assets quick assets can be liquidated faster. When we compare to quick asset absolute liquid asset will be liquidated faster . How because stock is a current asset if convert this stock to cash it will take time . First raw material are purchased and kept in warehouse then it as to go work in progress then it will become finished goods and it will be stored in warehouse. If the goods are sold on credit after certain period debtors will pay cash for us . This process will take time immediately stock cannot be converted to cash easily that's why we not including stock and prepaid expenses in the quick asset . 2. When we compare to stock debtors are converted to cash faster that's why we are taking debtors in quick asset . 3. We are ignoring debtors in absolute liquid asset because debtors are also takes time to convert into cash we need to give time for debtors to pay cash. time period for 7 days ,30 days etc . Sometimes after the due date some debtors will not be able to pay on time . That's why we are not including in absolute liquid asset Absolute liquid asset are cash and marketable securities . Cash is already liquidated and marketable securities means idle cash will be invested in short term investment that we say as marketable securities . In simple way to understand this concept Current asset will be liquidated faster than fixed asset Quick asset will liquidated faster than current asset Absolute liquid asset are faster than quick asset . Absolute liquid asset are cash which is liquidated already and marketable securities. That's it By doing this ratio company can analysis there liquidity position good or bad. It will be helpful to take a decision . I think this information will be helpful for student also . Sir some time mistakes will be happend don't worry and try to give your best sir thank you .
![#1 Ratio Analysis [Liquidity & Activity Ratios] ~ Concept behind formation of a Formula](http://i.ytimg.com/vi/76gMXQBnbps/mqdefault.jpg)
Thank you so much sir. Really you done a good job ,this helps many students .
Yes
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Sir one thing, I don't know on what basses do you teach to your student . Sir I respect your profession but don't misuse it. Its my humble request don't spread wrong information. I will say from where did you went wrong . Sir in balance sheet you have written (quick asset ) and absolute liquid asset under the current asset in the balance sheet that is the first mistake. in balance sheet we are not supposed to take quick asset and absolute liquid asset . Just we need mention current asset and non current asset ( fixed asset) in the asset side of the b/s . And second thing is , the item's which you had taken in quick asset and absolute liquid asset is totally wrong . Sir current asset includes :
1 . cash in hand or bank
2. Marketable securities ( short term investment)
3. Debtors
4. Inventory (stock)
5. Prepaid expenses etc
This are the above current asset
Quick asset includes:
1. Cash or bank
2. Marketable securities
3. Debtors
We are eliminating stock and prepaid expenses in quick asset
Absolute liquid asset
1. Cash or bank
2. Marketable securities
That's it .
This is calculate to know the liquidity position of the company .
Liquidity means which is easily converted into cash .
1.current ratio : current asset/ current liabilities
2. Quick ratio : quick asset / current liabilities
3. Absolute liquid ratio or cash ratio : absolute liquid asset / current liabilities
When we compare to current assets quick assets can be liquidated faster.
When we compare to quick asset absolute liquid asset will be liquidated faster .
How because stock is a current asset if convert this stock to cash it will take time . First raw material are purchased and kept in warehouse then it as to go work in progress then it will become finished goods and it will be stored in warehouse. If the goods are sold on credit after certain period debtors will pay cash for us . This process will take time immediately stock cannot be converted to cash easily that's why we not including stock and prepaid expenses in the quick asset .
2. When we compare to stock debtors are converted to cash faster that's why we are taking debtors in quick asset .
3. We are ignoring debtors in absolute liquid asset because debtors are also takes time to convert into cash we need to give time for debtors to pay cash. time period for 7 days ,30 days etc .
Sometimes after the due date some debtors will not be able to pay on time .
That's why we are not including in absolute liquid asset
Absolute liquid asset are cash and marketable securities . Cash is already liquidated and marketable securities means idle cash will be invested in short term investment that we say as marketable securities .
In simple way to understand this concept
Current asset will be liquidated faster than fixed asset
Quick asset will liquidated faster than current asset
Absolute liquid asset are faster than quick asset .
Absolute liquid asset are cash which is liquidated already and marketable securities. That's it
By doing this ratio company can analysis there liquidity position good or bad. It will be helpful to take a decision .
I think this information will be helpful for student also .
Sir some time mistakes will be happend don't worry and try to give your best sir thank you .
Sir I am not finding other videos on Management Accounting, if you could please help me with the playlist, Thank you!
Sir introduction of management accounting ,6 sem bcom plzzz , upload
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Ratio analysis 2016 question paper 14 marks solve madi pls exams ge help aguthe thumba kami dhina
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