Question

If Current Ratio of a firm is 2.5 : 1 and its Current Liabilities are ₹ 4,00,000. Its Working Capital will be ______.

Options

• ₹ 6,00,000

• ₹ 7,50,000

• ₹ 8,00,000

• ₹ 14,00,000

Answer 1

If Current Ratio of a firm is 2.5 : 1 and its Current Liabilities are ₹ 4,00,000. Its Working Capital will be ₹ 6,00,000.

Explanation:

The Current Ratio is calculated as Current Assets divided by Current Liabilities.

\[\text{Current Assets} = \text{Current Ratio} \times \text{Current Liabilities} = 2.5 \times 4,00,000 = \text{₹ } 10,00,000\]

The Working Capital by subtracting Current Liabilities from Current Assets:
$$\text{Working Capital} = \text{Current Assets} - \text{Current Liabilities} = 10,00,000 - 4,00,000 = {\text{₹ } 6,00,000}$$