Question

A transaction involving an increase in Current Ratio and no change in Working Capital if Current Ratio is 2 : 1, is ______.

Options

• Sale of Non-current Asset for cash.

• Cash payment of a Non-current Liability.

• Purchase of goods on credit.

• Payment to a Trade Creditor.

Answer 1

A transaction involving an increase in Current Ratio and no change in Working Capital if Current Ratio is 2 : 1, is Sale of Non-current Asset for cash.

Explanation:

Selling a non-current asset for cash increases Current Assets (Cash) while keeping Current Liabilities completely unchanged, which directly increases the Current Ratio. At the same time, Working Capital does not change because the cash received simply exchanges a long-term asset for a short-term asset of equal value, leaving the net current margin unaffected.