Question : A Company’s Current Assets are Rs.8,00,000 and its current liabilities are Rs.4,00,000. Subsequently, it purchased goods for Rs.1,00,000 on credit. Current ratio will be -
Option 1: 2.25:1
Option 2: 2:1
Option 3: 1.6:1
Option 4: 1.8:1
Correct Answer: 1.8:1
Solution : Current assets = 800000
Current liabilities = 400000
Purchase of goods on credit will have two effects -
1. Increase stock by Rs.100000, Current assets will thereby increase to Rs.900000 (800000+100000)
2. Increase creditors by Rs.100000. Current liabilities will now be Rs.500000 (400000+100000)
Current ratio = Current assets / Current liabilities
= 900000/500000
= 1.8:1
Hence the correct answer is option 4.
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