Current liabilities of a company were ₹2,00,000 and its current ratio was 2.5 : 1. After this the company paid ₹1,00,000 to a trade payable. The current ratio after the payment will be:
Answer & explanation
Correct answer: option 2
The correct answer is option 2- 4:1.
Current Ratio= Current Current Assets/Current Liabilities
2.5/1= Current Assets/2,00,000
Current assets = 2,00,000 x 2.5
Current Assets = 5,00,000
After Payment of Trade Payable, Current Assets is reduced by ₹1,00,000 because cash is reduced. and Current Liabilities will be reduced by ₹1,00,000 as trade payables are reduced by this amount.
Hence the new current assets = 5,00,000 - 1,00,000
= ₹4,00,000
New Current Liabilities = 2,00,000 -1,00,000
= 1,00,000
So, Current Ratio = 4,00,000/1,00,000
= 4:1