Question

Ratio of Current Assets (₹3,00,000) to Current Liabilities (₹2,00,000) is 1.5:1. The accountant of the firm is interested in maintaing a Current Ratio of 2:1 by paying off a part of the Current Liabilities. Compute amount of the Current Liabilities that should be paid so that the Current Ratio at the level of 2:1 may be maintained.

Answer 1

`"Current Ratio" = "Current Assets"/ "Current liability" = 1.5/1`

The company is interested in maintaining the Current Ratio of 2:1 by paying off the liability.

Let the liability paid-off by the company = x

∴ New Current Assets = 3,00,000 − x

New Current Liabilities = 2,00,000 − x

New Current Ratio = `(300000 - x)/(200000 - x) = 2/1`

or, 300000 - x = 400000 - 2x

or, x = 100000

Therefore, liability of Rs 1,00,000 need to be paid-off by the company in order to maintain the Current Ratio of 2 : 1.