Question

Current Assets of a company are ₹ 5,00,000 and its current ratio is 2.5. Thereafter, it received ₹ 2,00,000 from its debtors and made payment of ₹ 1,00,000 to its creditors. Current ratio will be ______.

Options

• 2 : 1

• 5 : 1

• 6 : 1

• 4 : 1

Answer 1

Current Assets of a company are ₹ 5,00,000 and its current ratio is 2.5. Thereafter, it received ₹ 2,00,000 from its debtors and made payment of ₹ 1,00,000 to its creditors. Current ratio will be 4 : 1.

Explanation:

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

2.5 = `(5,00,000)/"Current Liabilities"`

Current Liabilities = `(5,00,000)/2.5`

= ₹ 2,00,000

Receipt of ₹ 2,00,000 will not affect the Current Ratio. But payment to Creditors will decrease the Current Assets as well as Current Liabilities.

Current Ratio = `(5,00,000 - 1,00,000)/(2,00,000 - 1,00,000)`

= `(4,00,000)/(1,00,000)`

= 4 : 1