Current Assets of a Company were Rs 1 00 000 and its current ratio was 2 1 After this the company pa...........

General Accounting Principles Ratio analysis

Current Assets of a Company were Rs 1,00,000 and its current ratio was 2 : 1. After this the company paid Rs 25,000 to a Trade Payable. The Current Ratio after the payment will be :

5:1

2:1

3:1

4:1

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Explanation:

If Rs.25,000 is paid to a trade payables it will reduce both current assets as well as current liabilities as cash is being paid and trade payables are reduced. Hence, new ratio will be:-

Current Ratio = Current Assets/ current liabilities

= 1,00,000 - 25,000

50,000(WN 1) - 25,000

= 75,000/ 25,000

= 3:1

Working note for current assets

Current Ratio = Current Assets/ current liabilities

Current Assets = current ratio

Current liabilities

Rs.1,00,000 =2

X 1

current liabilities=Rs.1,00,000 /2=Rs.50,000