Question : Assertion (A): The sale of items for Rs. 25,000 (cost: Rs. 20,000) in cash will lower the ratio if the current ratio is 2:1. Reason (R): Selling goods for Rs.25,000 will result in a Rs.25,000 gain in current assets (Cash/Trade Debtors) and a Rs.20,000 decrease in current assets (goods). As a result, current assets will rise byRs. 5,000, which will boost the current ratio.
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 True.
Correct Answer: Assertion (A) is False and Reason (R) is True.
Solution : If we are selling goods for cash, it signifies that we are adding cash to the current asset. The current ratio will rise as asset values rise. Selling goods for Rs.25,000 will result in a Rs.25,000 gain in current assets (Cash/Trade Debtors) and a Rs.20,000 decrease in current assets (goods). As a result, current assets will rise by Rs.5,000, which will boost the current ratio. Hence option 4 is the correct answer.
Question : Assertion: If the Current Ratio is 5: 1, the purchase of goods of Rs.60,000 on credit will reduce the ratio. Reason (R): Current assets (Goods) and Current Liabilities will both rise as a result of the credit purchase of goods for Rs.50,000. (Creditors). As a result, the
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
Question : Assertion (A): If Trade Payables are Rs.80,000, Working Capital is Rs.16,00,000, and Current Liabilities are Rs.6,00,000, the Current Ratio will be 2:1. Reason (R): Current Ratio = Current Assets/Current Liabilities
Question : Assertion (A): Payment of the Rs.10,000 current liability will raise the Current Ratio if it is now 2:1. Reason (R): Paying down an Rs.10,000 current liability will result in a Rs. 10,000 reduction in both current assets (cash) and current liabilities. As a result,
Question : Assertion (A): Current Assets/Current Liabilities is the formula for calculating the current ratio Reason (R): The current ratio is derived by dividing current assets by current liabilities. Current assets are made up of spare parts, loose tools, and stores.
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