Question : What will be the effect on the current ratio when cash payments are made to its creditors?
Option 1: It will decrease
Option 2: It will increase
Option 3: No change
Option 4: None of these
Correct Answer: It will increase
Solution : After cash payment to some of its creditors, the current ratio will increase. Since ideal current ratio is 2:1 and further the current liability is reduced as well as the current asset with the same amount, it will proportionately reduce the liability more than the assets and will result into an increase in the current ratio. Hence option 2 is the correct answer.
Question : If the current ratio were 2:1, how the purchase of goods on credit will affect the current ratio?
Option 1: Decrease gross profit ratio
Option 2: Have no effect on the Current ratio
Option 3: Increase Current ratio
Option 4: Decrease the Current ratio
Question : The Current Ratio of a Company is 2:1. Redemption of Debentures would
Option 1: Increase current Ratio
Option 2: Decrease Current ratio
Option 3: Have no effect on current ratio
Option 4: Decrease gross profit ratio
Question : The Current Ratio of a Company is 2: 1. What will be the effect on the current Ratio if purchased goods on credit
Option 1: Increase
Option 2: Decrease
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