Question : The Current Ratio of a company is 2:1 . State, that the following transaction would improve, reduce or alter the current ratio.
Purchasing goods on credit.
Option 1: Improve
Option 2: Reduce
Option 3:
Alter
Option 4:
None of the above
Answer (1)
19th Jan, 2024
Correct Answer: Reduce
Solution :
Suppose, a good for Rs 50,000 is purchased on a credit basis.
Current Assets = Rs.2,00,000 + Rs.50,000 = Rs.2,50,000.
Current Liabilities = Rs.1,00,000 + Rs.50,000 = Rs.1,50,000.
Current Ratio = Current Assets/Current Liabilities = Rs.2,50,000/Rs.1,50,000 = 1.67:1.
Hence, the correct ratio is option 2.
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