Question

A firm had current assets of ₹ 4,10,000 . It then paid creditors of ₹ 50,000. After this payment, the current ratio was 2.4 : 1. Ascertain the amount of Current Liabilities and Working Capital after the payment.

Answer 1

Current Ratio = `"Current Assets"/"Current Liabilities"`

Current Ratio after the payment of creditors of ₹ 50,000.

Let the Current Liabilities be ₹ x.

2.4 = `(₹ 4,10,000 - ₹ 50,000 ("Cash"))/(x - ₹ 50,000 ("Trade Payables"))`

2.4 (x − ₹ 50,000) = ₹ 4,10,000 − ₹ 50,000

2.4x − ₹ 1,20,000 = ₹ 3,60,000

2.4x = ₹ 3,60,000 + ₹ 1,20,000

x = `(₹ 4,80,000)/2.4`

x (Current Liabilities) = ₹ 2,00,000 (Before Payment)

Current Liabilities after payment = ₹ 2,00,000 − ₹ 50,000

= ₹ 1,50,000

Current Assets after payment = ₹ 4,10,000 − ₹ 50,000

= ₹ 3,60,000

Working Capital = Current Assets − Current Liabilities

= ₹ 3,60,000 − ₹ 1,50,000

= ₹ 2,10,000