The current ratio is 2:1.
The impact of goods purchased on credit will:
Answer & explanation
Correct answer: option 2
The correct answer is option 2- Decrease the ratio.
Current ratio = 2:1
Purchase of goods on credit will increase the stock in the current assets and creditors on the current liabilities side.
Lets assume current asset is 2,00,000 and current liabilities is 1,00,000 and goods are purchased for 20,000
New current asset = 2,00,000 + 20,000
= 2,20,000
New current liability = 1,00,000 + 20,000
= 1,20,000
New ratio = 2,20,000/1,20,000
= 1.83 :1
Thus, current ratio decreases.