Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Accounting Ratios

Question:

What will be the new current ratio if the current ratio is 0.8:1 and the sale of goods is done for ₹200000 (costing ₹220000) by the company?

Options:

0.8:1

0.7:1

0.9:1

0.6:1

Correct Answer:

0.6:1

Explanation:

Let us assume the current asset will be ₹80000 and the current liabilities ₹100000 as the current ratio is (0.8:1).
Sale of goods for ₹200000 costing ₹220000 makes cash increase by ₹200000 but stock decrease by ₹220000 which ultimately makes current assets decrease by ₹20000 i.e new current asset will be ₹60000.
No effect on current liabilities.
New current ratio = 60000/100000
                          = 0.6:1