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The lesson distinguishes "technical bankruptcy" from "insolvency". What does the lesson identify as the threshold marker of technical bankruptcy?
Answer & Solution
Correct answer: D.
1. The lesson distinguishes failure of a firm into technical bankruptcy and insolvency.
2. Technical bankruptcy arises when net worth becomes negative — that is, liabilities exceed assets.
3. It can be ascertained by comparing current assets and current liabilities through current and quick ratios.
4. The other thresholds are not the lesson's definition of technical bankruptcy.
_Source: ICSI CS Executive Paper 8 (Financial and Strategic Management) — Lesson 1: Nature, Significance and Scope of Financial Management, pp. 6-20._
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