Which transaction causes an increase in the Current Ratio (2:1) but does not bring any change in Working Capital of the company?

Payment to a Trade Creditor

The correct answer is option 1- Payment to a Trade Creditor.

Working Capital will not change if there is an equal change in current asset and current liability or no change in both and it can be possible with option 1 and 4. The current ratio can increase with a decrease in current assets and decrease in current liabilities by the same amount. So, option 1 is the correct answer.

* Payment to a Trade Creditor- It increase the current ratio but no change in working capital.

Lets assume current assets is ₹2,00,000 and current liabilities is ₹1,00,000.
Payment to creditor of ₹50,000 makes the cash to decrease and creditors by the same amount.
It means current assets and current liabilities is decreased by 50,000 which makes the current ratio increase as now it is
1,50,000/50,000 means 3:1
but no change in working capital as current assets - current liabilities = 150000 - 50000 means 1,00,000 as before.

OTHER OPTIONS-

• Cash payment of Non-current Liability- Increase current ratio by reducing current liability but make change in working capital. due to reduction in current liability.

• Sale of Fixed Assets for Cash- Increase current ratio by increasing current asset but make change in working capital due to change in current asset.

• Purchase of Stock-in-Trade on credit-  It reduces the current ratio not increase it as both current assets and current liabilities increase.