Question : Assertion (A): If working capital is Rs. 2,40,000, current assets are Rs. 4,000,00, which includes Rs. 2,000 in inventory. There will be a current ratio of 2.5:1.
Reason (R): Current Ratio = Current Assets/Current Liabilities
Option 1: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Option 2: Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
Option 3: Assertion (A) is true but Reason (R) is False
Option 4: Assertion (A) is False and Reason (R) is correct
Correct Answer: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Solution :
Current Liabilities = Current Assets – Working Capital, i.e., ₹ 4,00,000 – ₹ 2,40,000 = ₹ 1,60,000, CR = ₹ 4,00,000/₹ 1,60,000 = 2.5 : 1
Hence option 1 is the correct answer.
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