The Current Ratio of a Company is 2:1. State whether the current ratio (i) improve (ii) reduce (iii) not alter from the transactions given below. Purchasing goods on credit.
Options:
Improve
Reduce
Not alter
None of these
Correct Answer:
Reduce
Explanation:
Purchasing Goods on Credit: Suppose, current assets are 2,00,000 and Current Liability are 100000 and goods for 25,000 is purchased on credit. Current liability= 1,00,000+ 25,000 (Trade Payables) =1,25,000 Current asset = 200000+25000(inventory)= ₹225000 Current ratio= 225000/125000= 1.8:1 So, the current ratio is reduced.
