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Question
Current liabilities of a company were Rs. 1,75,000 and its current ratio was 2: 1. It paid Rs. 30,000 to a creditor. Calculate current ratio after payment :
Current liabilities of a company were Rs. 1,75,000 and its current ratio was 2: 1. It paid Rs. 30,000 to a creditor. Calculate current ratio after payment :
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Solution
The correct option is D 2.21: 1
Given,Current liabilities = Rs-1,75,000Current Ratio = 2:1
If 30,000 is paid to a creditor it will reduce both current assets as well as current liabilities as cash is being paid and creditors are reduced. Hence, new ratio will be:-
Current Ratio = Current Assets ------------------------- Current liabilities
Working note 1) = Current assets Current Ratio = Current Assets ------------------------- Current liabilitiesCurrent Assets = Current liabilities x current ratio = 1,75,000 x 2 = 3,50,000.
Given,
Current liabilities = Rs-1,75,000
Current Ratio = 2:1
If 30,000 is paid to a creditor it will reduce both current assets as well as current liabilities as cash is being paid and creditors are reduced. Hence, new ratio will be:-
Current Ratio = Current Assets
-------------------------
Current liabilities
--------------------------------------
1,75,000 - 30,000
= 3,20,000
--------------
1,45,000
= 2.2 : 1
Working note 1) = Current assets
Current Ratio = Current Assets
-------------------------
Current liabilities
Current Assets = Current liabilities x current ratio
= 1,75,000 x 2
= 3,50,000.
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