Question

Current Ratio is 2 : 1. On the sale of fixed asset (Book value ₹ 40,000) on ₹ 36,000 on credit,state whether the Current Ratio will ______.

Options

• Improve

• Decline

• Not change

• Can't say.

Answer 1

Current Ratio is 2 : 1. On the sale of fixed asset (Book value ₹ 40,000) on ₹ 36,000 on credit,state whether the Current Ratio will improve.

Explanation:

The Current Ratio is calculated by dividing Current Assets by Current Liabilities. Selling a fixed asset on credit creates a debtor or bill receivable worth ₹ 36,000, which directly increases Current Assets. The loss of ₹ 4,00,000 on the sale reduces profits but does not affect current items, and Current Liabilities remain completely unchanged.