Assuming the current ratio is 2:1. If B/R is dishonored then what will be the effect on the current ratio?
Answer & explanation
Correct answer: option 3
Current ratio is 2:1.
Lets assume Current assets is ₹200000 and current liabilities is ₹100000.
B/R is dishonored, neither current assets nor current liabilities are affected since there is only a conversion of one asset into another current asset. So lets assume B/R is of ₹50000.
So, bills receivable is dishonoured means ₹50000 is reduced B/R and debtors of ₹50000 means no change is current assets. So its not altered.