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Question
Current Liabilities of a Company were ₹ 2,00,000 and its Current Ratio was 1.4 : 1. After this, it purchased goods for ₹ 1,20,000 on credit. Calculate the revised Current Ratio.
Numerical
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Solution
Current Ratio = `"Current Assets"/"Current Liabilities"`
1.4 = `"Current Assets"/(₹ 2,00,000)`
Current Assets = ₹ 2,00,000 × 1.4
= ₹ 2,80,000
After the purchase of goods on credit, inventory as well as creditors will increase:
Current Assets = ₹ 2,80,000 + ₹ 1,20,000 (Inventory)
= ₹ 4,00,000
Current Liabilities = ₹ 2,00,000 + ₹ 1,20,000 (Creditors)
= ₹ 3,20,000
Revised Current Ratio = `"Current Assets"/"Current Liabilities"`
= `(₹ 4,00,000)/(₹ 3,20,000)`
= 1.25 : 1
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