Current Assets of a Company were ₹1,00,000 and its current ratio was 2:1. After this the company paid ₹25,000 of Trade Payable. The Current Ratio after the payment will be:
Answer & explanation
Correct answer: option 3
The correct answer is option 3- 3:1.
Current Ratio = Current Assets / Current Liabilities
Current Ratio = 2/1
1,00,000/Current Liabilities = 2/1
Current liabilities = 1,00,000/2
Current Liabilities = 50,000
After Payment of trade Payable,
Cash/Bank is reduced, so Current Assets = (1,00,000-25,000)
= 75,000
Trade payable paid, so Current liabilities are also reduced = (50,000-25,000)
= 25,000
Therefore, New Current Ratio = 75,000/25,000
= 3:1