OSG Sales Ltd. are in the business of retailing household items from their 4 Sale Outlets located in the same city Chandigarh. Considering the current situation, the management decided to set up an Online Platform and Delivery System. They got the financial position of the company assessed. The expert computed various accounting ratios to assess the financial position. Since the ratios were based on current financial data they decided to consider situations that could impact the financial position and therefore, the ratios so that they can have a sound business model without facing financial crises. plan afresh. They were particularly interested to assess the capital that may be required to be infused for the business. The Current Ratio was determined to be 2 : 1.

What will be the effect on the current ratio if the company did a payment of ₹50000 to a trade creditor before its due date and what will be the new current ratio?

Improve (3:1)

Payment of ₹50000 make a reduction in both current asset and current liabilities as cash will reduce with ₹50000 and creditors were reduced by the same amount.

Reduction in both makes an improvement in current ratio.
Assume current asset of ₹200000 and current liabilities of ₹100000
* ₹50000 is deducted from both which make current asset = ₹150000 and current liabilities = ₹50000
Current ratio = Current asset / Current liabilities
                    =  150000 / 50000
                    = 3:1