Question : Assertion (A): Payment of the Rs.10,000 current liability will raise the Current Ratio if it is now 2:1. Reason (R): Paying down an Rs.10,000 current liability will result in a Rs. 10,000 reduction in both current assets (cash) and current liabilities. As a result, the current ratio will drop.
Option 1: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Option 2: Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
Option 3: Assertion (A) is true but Reason (R) is False
Option 4: Assertion (A) is False and Reason (R) is False.
Correct Answer: Assertion (A) is true but Reason (R) is False
Solution : When the denominator and the numerator are reduced by the same amount and the current ratio is greater than one. The numerator is proportionally lowered less than the denominator, which is already smaller than it. The overall ratio will therefore increase. Hence option 3 is the correct answer.
Question : Assertion (A): If Trade Payables are Rs.80,000, Working Capital is Rs.16,00,000, and Current Liabilities are Rs.6,00,000, the Current Ratio will be 2:1. Reason (R): Current Ratio = Current Assets/Current Liabilities
Question : Assertion (A): If working capital is Rs. 2,40,000, current assets are Rs. 4,000,00, which includes Rs. 2,000 in inventory. There will be a current ratio of 2.5:1. Reason (R): Current Ratio = Current Assets/Current Liabilities
Question : Assertion: If the Current Ratio is 5: 1, the purchase of goods of Rs.60,000 on credit will reduce the ratio. Reason (R): Current assets (Goods) and Current Liabilities will both rise as a result of the credit purchase of goods for Rs.50,000. (Creditors). As a result, the
Question : Assertion (A): The ratio that results from dividing current assets by current liabilities is known as the liquid ratio. Reason (R): Liquid Assets/Current Liabilities is the formula for calculating the liquid ratio.
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