wiz-icon
MyQuestionIcon
MyQuestionIcon
1450
You visited us 1450 times! Enjoying our articles? Unlock Full Access!
Question

Ratio of Current Assets (₹8,75,000) to Current Liabilities (₹3,50,000) is 2.5:1. The firm wants to maintain Current Ratio of 2:1 by purchasing goods on credit. Compute amount of goods that should be purchased on credit.

Open in App
Solution

Current Assets = Rs 8,75,000
Current Liabilities = Rs 3,50,000
Current Ratio = 2.5:1

The business is interested to maintain its Current Ratio at 2:1 by purchasing goods on credit.
Let the amount of goods purchased on credit be ‘x’
Current Liabilities = Rs 3,50,000 + x
Current Assets = Rs 8,75,000 + x



8,75,000 + x = 7,00,000 + 2x
8,75,000 – 7,00,000 = 2x – x
1,75,000 = x


Therefore, goods worth Rs 1,75,000 must be purchased on credit to maintain the current ratio at 2:1.

flag
Suggest Corrections
thumbs-up
18
similar_icon
Similar questions
View More
Join BYJU'S Learning Program
similar_icon
Related Videos
thumbnail
lock
Accounting Treatment
ACCOUNTANCY
Watch in App
Join BYJU'S Learning Program
CrossIcon