Question

The current ratio of Z. Ltd is 1: 1. A state with reason which of the following transaction would

1. increase;
2. decrease or
3. not change the ratio.

1. Included in the trade payables was a bill payable of  Rs 3,000 which was met on maturity

2. Debentures of Rs 50,000 were converted into Equity Share

Answer 1

Quick ratio = `"Liquid Assets"/"Current Liabilities"`

1) A bill payable was met on maturity will affect:

Trade Payables will reduce by Rs 3,000.
Cash will reduce by Rs 3,000.
The simultaneous decrease in Both liquid assets and current liabilities by the same amount will leave the ratio unaffected.

2. Conversion of Debentures of Rs 50,000 into equity share will

A decrease in Debentures of Rs 50,000
Increase in Equity share i.e. Share Capital by Rs 50,000.
Debentures and share capital both does not form part of the liquid ratio. Therefore, will be no effect on the ratio.