The Current Ratio of a Company is 2:1. The current ratio has the following affect with transaction given below:
* Sale of Office Equipment for ₹8,000 (Book Value ₹9,000).
Answer & explanation
Correct answer: option 1
The correct answer is option 1- Improve.
Sale of an Office Equipment for ₹8,000 (Book Value ₹9,000):
Suppose current assets are 2,00,000 and current liabilities are 1,00,000.
Sale of Office Equipment (e.g., Typewriter etc.) results in an increase in Cash Balance by 8,000 and this leads to an increase in current assets. There will be no other effect of the sale of office equipment since it is a fixed asset. As such, current asset will be =2,00,000 +8,000 (Cash) = 2,08,000
Current ratio = 2,08,000/1,00,000
= 2.08: 1
So, the Current Ratio is improved.