Question

The Current Ratio of a Company is 0.8 : 1. State giving reasons which of the following transactions would (i) Improve; (ii) Reduce; (iii) Not change; the Current Ratio:

1. Payment of Trade Payables.
2. Purchase of goods on Credit.
3. Sale of furniture costing ₹ 10,000 at a loss of ₹ 2,000.
4. Sale of goods costing ₹ 15,000 at a profit of ₹ 1,000.
5. Payment of dividend payable.

Answer 1

Tr. No.	Current Ratio will	Reasons
a.	Reduce	By the same amount, all current assets and current liabilities are reduced. If the current ratio is less than one, the current ratio is 0.8.
b.	Improve	By the same amount, all current assets and current liabilities are increased. If the Current Ratio is less than one.
c.	Improve	Current assets are increased, but Current Liabilities remain unchanged.
d.	Improve	Current assets are increased by the amount of profit, but current liabilities remain unchanged.
e.	Reduce	By the same amount, all current assets and current liabilities are reduced if the current ratio is less than one.