The Current Ratio of a Company is 2: 1. State Giving Reason Whether Purchase of Goods on Credit Will Increase, Decrease Or Not Change the Ratio. - Accountancy

Advertisement Remove all ads
Short Note

Answer the following question:
The current ratio of a company is 2: 1. State giving reason whether the purchase of goods on credit will increase, decrease, or not change the ratio.

Advertisement Remove all ads

Solution

Decline, as both Current Assets and Current Liabilities, have increased due to the purchase of goods on credit.
For example, a company has Current Assets of ₹ 2,00,000 and Current Liabilities of  ₹ 1,00,000. Afterward, goods of ₹ 10,000 were purchased on credit.

Current Ratio = `"Current Assets"/"Current Liabilities" = (2,00,000 + 10,000∗)/(1,00,000+10,000∗) = 1.9090 : 1`

∗ Purchase of goods on credit will increase the stock and increase the creditors by ₹10,000

  Is there an error in this question or solution?
Advertisement Remove all ads
Advertisement Remove all ads
Share
Notifications

View all notifications


      Forgot password?
View in app×