Question

Working Capital ₹ 9,00,000; Total Debts (Liabilities) ₹ 19,50,000; Long-Term Debts 15,00,000. Calculate Current Ratio.

Hints:

1. Current Liabilities = Total Debts − Long-term Debts.
2. Current Assets = Working Capital + Current Liabilities.

Answer 1

Given:

Working Capital = ₹ 9,00,000

Total Debts (Liabilities) = ₹ 19,50,000

Long-Term Debts = ₹ 15,00,000

$$\begin{aligned} \text{Current Liabilities} &= \text{Total Debts} - \text{Long-Term Debts} \\ &= 19,50,000 - 15,00,000 \\ &= {₹\ 4,50,000} \end{aligned}$$

We know that:

$$\text{Working Capital} = \text{Current Assets} - \text{Current Liabilities}$$

Therefore:

$$\begin{aligned} \text{Current Assets} &= \text{Working Capital} + \text{Current Liabilities} \\ &= 9,00,000 + 4,50,000 \\ &= {₹\ 13,50,000} \end{aligned}$$

Now, the Current Ratio formula is:

$$\begin{aligned} \text{Current Ratio} &= \frac{\text{Current Assets}}{\text{Current Liabilities}} \\ &= \frac{13,50,000}{4,50,000} = {3 : 1} \end{aligned}$$