Question

Current Assets of a Company are ₹ 3,60,000 and its Current ratio is 1.8. Afterwards, it made payment to a Creditor amounting to ₹ 40,000. Calculate the revised current ratio.

Answer 1

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

1.8 = `(₹ 3,60,000)/"Current Liabilities"`

Current Liabilities = `(₹ 3,60,000)/1.8`

= ₹ 2,00,000

After payment of ₹ 40,000 to a creditor, creditors as well as cash will decrease by the same amount. Thus:

Current Assets = ₹ 3,60,000 − ₹ 40,000 (Cash)

= ₹ 3,20,000

Current Liabilities = ₹ 2,00,000 − ₹ 40,000 (Creditors)

= ₹ 1,60,000

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

= `(₹ 3,20,000)/(₹ 1,60,000)`

= 2 : 1