What will be the new current ratio if the current ratio is 0.8:1 and the sale of goods is done for ₹2,00,000 (costing ₹2,20,000) by the company?
Answer & explanation
Correct answer: option 4
The correct answer is option 4- 0.6:1.
Let us assume the current asset will be ₹80,000 and the current liabilities ₹1,00,000 as the current ratio is (0.8:1).
Sale of goods for ₹2,00,000 costing ₹2,20,000 makes cash increase by ₹2,00,000 but stock decrease by ₹2,20,000 which ultimately makes current assets decrease by ₹20,000 i.e new current asset will be ₹60,000.
No effect on current liabilities.
New current ratio = 60,000/1,00,000
= 0.6:1