Current liabilities of a company were Rs 2 00 000 and its current ratio was 2 5 1 After this the com...........

General Accounting Principles Ratio analysis

Current liabilities of a company were Rs 2,00,000 and its current ratio was 2.5 : 1. After this the company paid Rs 1,00,000 to a trade payable. The current ratio after the payment will be :

2:1

4:1

5:1

None of the above

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Explanation:

If Rs. 1,00,000is paid to a tradep ayables 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

= 5,00,000 (WN 1) - 1,00,000

2,00,000 - 1,00,000

= 4,00,000/ 1,00,000

= 4: 1

Working note for current assets

Current Ratio = Current Assets/ current liabilities

Current Assets = current ratio

Current liabilities

X =2.5

Rs.2,00,000 1

current assets=Rs.2,00,000 * 2.5=Rs.5,00,000