Question

Current liabilities of a company were ₹ 2,00,000 and its current ratio was 2.5 : 1. After this the company paid ₹ 1,00,000 to a trade payable. The current ratio after the payment will be ______.

Options

• 2 : 1

• 4 : 1

• 5 : 1

• None of the above

Answer 1

Current liabilities of a company were ₹ 2,00,000 and its current ratio was 2.5 : 1. After this the company paid ₹ 1,00,000 to a trade payable. The current ratio after the payment will be 4 : 1.

Explanation:

Current Ratio = `"Current Assets"/"Current liabilities"`

2.5 = `"Current Assets"/(2,00,000)`

Current Assets = 2,00,000 × 2.5

= ₹ 5,00,000

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

New Current Assets = 5,00,000 − 1,00,000

= ₹ 4,00,000

New Current Liabilities = 2,00,000 − 1,00,000

= ₹ 1,00,000

Calculate the new Current Ratio:

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

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

= 4 : 1