The current ratio is 2 : 1. Which of the following transaction would…

The correct answer is Option (1) → Sale of merchandise (goods) costing Rs. 70,000 for Rs. 71,000

The current ratio is current assets divided by current liabilities. With the ratio above 1, it improves when current assets rise without a matching rise in current liabilities. Take current assets of Rs. 2,00,000 and current liabilities of Rs. 1,00,000 to test each option.

Option (1) Sale of merchandise (goods) costing Rs. 70,000 for Rs. 71,000 — Correct. Inventory falls by Rs. 70,000 and cash rises by Rs. 71,000, so current assets go up by the profit of Rs. 1,000. The ratio becomes 2,01,000 / 1,00,000 = 2.01 : 1.

Option (2) Purchase of goods of Rs. 60,000 on credit — Incorrect. Both sides rise by Rs. 60,000: 2,60,000 / 1,60,000 = 1.63 : 1. Adding the same amount to both sides pulls a ratio above 1 down.

Option (3) Cash received from trade receivables — Incorrect. One current asset replaces another, so the total and the ratio do not change.

Option (4) Conversion of 5% Preference Shares into 12% Debentures — Incorrect. Share capital becomes a long-term borrowing; no current asset or current liability is touched, so the ratio does not change.

Note: NTA picked this question from an NCERT (2026-27) illustration and changed the figures. Do not ignore NCERT while practising numericals.