Question

Current Ratio of Venus Ltd. is 3 : 2. lt is to be maintained at 2 : 1. Which of the following options are available?

1. He can repay bills payable
2. He can purchase goods on credit
3. He can take a short-term loan

Choose the correct option:

Options

• Only (i) is correct.

• Only (ii) is correct.

• Only (i) and (iii) are correct.

• Only (ii) and (iii) are correct.

Answer 1

Only (i) is correct.

Explanation:

The initial ratio is 3 : 2 and needs to be increased to 2 : 1. Repaying bills payable (i) decreases both current assets and current liabilities by the same amount, which mathematically improves a ratio that is above 1 : 1. Conversely, purchasing goods on credit (ii) or taking a short-term loan (iii) increases both sides equally, which reduces the ratio.