Question

The current ratio of Y Ltd. is 2:1. A state with reason which of the following transaction would

i. increase;
ii. decrease or
iii. not change the ratio

1) Trade receivables included debtors of Rs 40,000 which were received

2) The company purchased furniture of Rs 45,000. The vendor was paid by issue of equity share of Rs 10 each at par.

Answer 1

Current Assets Current ratio =  `"Current Assets"/"Current Liabilities"`

1) A bill payment of  Rs 9,000 was met on maturity will affect:

Trade Payables will reduce by Rs 9,000.

Cash will reduce by Rs 9,00

The simultaneous decrease in current assets and current liabilities will improve the current ratio.

2) The issue of shares of Rs 10,00,000 to a vendor of Machinery will affect the following:

Increase in the balance of machinery

Increase in the amount of share capital

There is no effect on the current liabilities nor current assets. Thus, current ratio will remain unchanged.