Question

Current Assets of a Company were ₹ 1,00,000 and its current ratio was 2 : 1. After this the company paid ₹ 25,000 to a Trade Payable. The Current Ratio after the payment will be ______.

Options

• 5 : 1

• 2 : 1

• 3 : 1

• 4 : 1

Answer 1

Current Assets of a Company were ₹ 1,00,000 and its current ratio was 2 : 1. After this the company paid ₹ 25,000 to a Trade Payable. The Current Ratio after the payment will be 3 : 1.

Explanation:

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

2 = `(1,00,000)/("Current Liabilities")`

Current Liabilities = `(1,00,000)/2`

= ₹ 50,000

After the payment, the new current assets and liabilities are:

New Current Assets = 1,00,000 − 25,000

= ₹ 75,000

New Current Liabilities = 50,000 − 25,000

= ₹ 25,000

Calculate the new Current Ratio:

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

= `(75,000)/(25,000)`

= 3 : 1