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Question
Current Assets of a company were ₹ 7,20,000 and its Current Ratio was 2.4 : 1. Afterwards, it made payment of ₹ 1,00,000 to its creditors. Calculate current ratio after the payment.
Numerical
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Solution
Current Ratio = `"Current Assets"/"Current Liabilities"`
2.4 = `(₹ 7,20,000)/"Current Liabilities"`
∴ Current Liabilities = `(₹ 7,20,000)/2.4`
= ₹ 3,00,000
After payment of ₹ 1,00,000 to a creditor, creditor as well as cash decrease by the same amount. Thus:
Current Assets = ₹ 7,20,000 − ₹ 1,00,000
= ₹ 6,20,000
Current Liabilities = ₹ 3,00,000 − ₹ 1,00,000
= ₹ 2,00,000
Current Ratio = `"Current Assets"/"Current Liabilities"`
= `(₹ 6,20,000)/(₹ 2,00,000)`
= 3.1 : 1
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