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Question
The Current Ratio of Sana Ltd. is 2 : 1. Which of the following transactions will reduce the Current Ratio?
Options
Payment to Trade Payables
Sale of Inventory at profit
Sale of Inventory at Loss
Cash collected from Trade Receivables
MCQ
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Solution
Sale of Inventory at Loss
Explanation:
When inventory is sold at a loss, the cash received is less than the value of the stock reduced. This causes a net decrease in Current Assets while Current Liabilities remain the same, which automatically reduces the Current Ratio.
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