When current ratio is $2 : 1$ , an equal increase in current assets and current liabilities would .

Increase the current ratio

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Decrease the current ratio

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No change in current ratio

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None of these

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Solution

The correct option is C Decrease the current ratio
When the current ratio is $2 : 1$ , an equal increase in current assets and current liabilities would decrease the current ratio. Let us understand this through an example;
Current Assets = $R s . 100000$ and Current Liabilities = $R s . 50000$
Current ratio = Current assets/ Current liabilities
= $100000 / 50000$
= $2 : 1$
Now let us increase the current assets and current liabilities by $R s . 50000$ and calculate the new current ratio ;
Current ratio = $150000 / 100000$
= $1.5 : 1$ .

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When current ratio is 2:1, an equal increase in current assets and current liabilities would .

When current ratio is $2 : 1$ , an equal increase in current assets and current liabilities would .