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Question : The Current Ratio of a company is 2:1 . State, that the following transaction would improve, reduce or alter the current ratio.

Purchasing goods on credit.

Option 1: Improve

Option 2: Reduce

Option 3:

Alter

Option 4:

None of the above


Team Careers360 18th Jan, 2024
Answer (1)
Team Careers360 19th Jan, 2024

Correct Answer: Reduce


Solution : Suppose, a good for Rs 50,000 is purchased on a credit basis.
Current Assets = Rs.2,00,000 + Rs.50,000 = Rs.2,50,000.
Current Liabilities = Rs.1,00,000 + Rs.50,000 = Rs.1,50,000.
Current Ratio = Current Assets/Current Liabilities = Rs.2,50,000/Rs.1,50,000 = 1.67:1.
Hence, the correct ratio is option 2.

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