Discussion Question Business Finance

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Mr. Ali started his entrepreneurial venture in 2015. Due to his hard work and determination, he had become a successful entrepreneur till 2019. In 2019, he turned his business firm into a larger supplier of “clinker” - a necessary element of material used in cement manufacturing. A local cement manufacturing unit, Star Cement wants to purchase material from Mr. Ali on credit period of 90 days. Current and quick ratios of Star Cement at the end of 2018 are 1.70:1 (Rs. 7,521/Rs. 4,424) and 1.46:1 (Rs. 6,450/Rs. 4,424) respectively.

Required:
a.        Which balance sheet items of Star Cement will be affected if Ali supplied clinker of Rs. 2,500 on account?
b.        Based upon the given information in question, what will be the new current ratio of Star Cement if Mr. Ali supplies material of Rs. 2,500 on account?
c.        Based upon the given information in question, what will be the new quick ratio of Star Cement if Mr. Ali supplies material of Rs. 2,500 on account?
Based on the answers of (b) and (c), which particular ratio (current or quick) will be affected more by this purchase on account? 

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