#### Question 11:

#### Current Liabilities of a company were `1,75,000 and its Current Ratio was 2: 1. It paid
`30,000 to a Creditor. Calculate Current Ratio after
payment.

**Answer:**

Current Ratio= 2:1** before payment to Creditor**

Current Liabilities = `1,75,000** before
payment to Creditor**

Current Assets = (`1,75,000×2)=3,50,000** before payment to Creditor**

Current Ratio **After** **payment to Creditor**

=3,50,000-30,000/1,75,000-30,000

Current Ratio = 3,20,000/1,45,000

Current Ratio = 2.21/1

#### Question
12:

Ratio of Current Assets (`3,00,000) to Current Liabilities ( `2,00,000) is 1.5:1. The accountant of the firm is interested in maintaining a Current Ratio of 2:1 by paying off a part of the Current Liabilities. Compute amount of the Current Liabilities that should be paid so that the Current Ratio at the level of 2:1 may be maintained.

#### Answer:

Current ratio= Current assets/Current liabilities=1.5:1

The company is interested in maintaining the Current Ratio of 2:1 by paying off the liability.

Let the liability paid-off by the company = *x*

∴ New Current Assets = 3,00,000 − *x*

New Current Liabilities = 2,00,000 − *x*

New Current ratio= 3,00,000-x/2,00,000-x=2:1

Or 3,00,000-3x=4,00,000-2x

Or 1,00,000

Therefore, liability of `1,00,000 need to be paid-off by the company in order to maintain the Current Ratio of 2 : 1.

#### Question 13:

#### Ratio of Current Assets ( `8,75,000) to Current
Liabilities ( `3,50,000) is 2.5:1. The
firm wants to maintain Current Ratio of 2:1 by purchasing goods on credit.
Compute amount of goods that should be purchased on credit.

#### Answer:

Current
Assets = ` 8,75,000

Current Liabilities = ` 3,50,000

Current Ratio = 2.5:1

The business is interested to maintain its Current Ratio at 2:1 by purchasing
goods on credit.

Let the amount of goods purchased on credit be ‘x’

Current Liabilities = ` 3,50,000 + x

Current Assets = ` 8,75,000 + x

Current ratio= Current assets/Current
liabilities=8,75,,000+x/3,50,000+x=2/1

8,75,000 + x = 7,00,000 + 2x

8,75,000 – 7,00,000 = 2x – x

1,75,000 = x

Therefore, goods worth ` 1,75,000 must be purchased on credit to maintain the
current ratio at 2:1.

#### Question
14:

A firm had Current Assets of `5,00,000. It paid Current Liabilities of `1,00,000 and the Current Ratio became 2:1. Determine Current Liabilities and Working Capital before and after the payment was made.

#### Answer:

Firm
disposed off liabilities of `
1,00,000 which results in decrease in current liabilities and current assets by
the same amount.

**After disposing liabilities:**

Current Assets = ` 4,00,000 ( ` 5,00,000 – ` 1,00,000)

And, Let Current Liabilities be (x – ` 1,00,000)

Current ratio= Current assets/Current liabilities=4,00,000/x-1,00,000=2:1

4,00,000 = 2x – 2,00,000

6,00,000 = 2x

Therefore, x = 3,00,000

Current Liabilities after payment = x – ` 1,00,000 = ` 2,00,000

Working Capital after Payment = Current Assets – Current Liabilities

= ` 4,00,000 – ` 2,00,000 = ` 2,00,000

Current Assets before payment = ` 5,00,000

Current Liabilities before Payment = ` 3,00,000

Therefore, Working Capital Before Payment = Current Assets – Current
Liabilities

= ` 5,00,000 – ` 3,00,000 = ` 2,00,000

#### Question
15:

State giving reason, whether the Current Ratio will improve
or decline or will have no effect in each of the following transactions if
Current Ratio is 2:1:

(a) Cash paid to Trade Payables.

(b) Bills Payable discharged.

(c) Bills Receivable endorsed to a creditor.

(d) Payment of final Dividend already declared.

(e) Purchase of Stock-in-Trade on credit.

(f) Bills Receivable endorsed to a Creditor dishonoured.

(g) Purchases of Stock-in-Trade for cash.

(h) Sale of Fixed Assets (Book Value of `50,000) for `45,000.

(i) Sale of Fixed Assets (Book Value of `50,000)
for `60,000.

#### Answer:

Let’s
assume Current Assets as ` 2,00,000 and Current
Liabilities as ` 1,00,000

Current Ratio=Current Assets/Current Liabilities

Current Ratio=2,00,000/1,00,000=2:1

(a) Cash paid to Trade Payables (say ` 50,000)

Current Ratio =2,00,000−50,000/1,00,000−50,000=3:1 (Improve)

(b) Bills Payable discharged (say ` 50,000)

Current Ratio = 2,00,000−50,000/1,00,000−50,000=3:1 (Improve)

(c) Bills Receivable endorsed to a creditor (say ` 50,000)

Current Ratio =2,00,000−50,000/1,00,000−50,000=3:1 (Improve)

(d) Payment of final Dividend already declared (say ` 50,000)

Current Ratio =2,00,000−50,000/1,00,000−50,000=3:1 (Improve)

(e) Purchase of Stock-in-Trade on credit (say ` 50,000)

Current Ratio =2,00,000+50,000/1,00,000+50,000=1.67:1 (Decline)

(f) Bills Receivable endorsed to a Creditor dishonoured
(say ` 50,000)

Current Ratio =2,00,000+50,000/1,00,000+50,000=1.67:1 (Decline)

(g) Purchase of Stock-in-Trade for cash (say ` 50,000)

Current Ratio =2,00,000+50,000−50,000/1,00,000=2:1 (No effect)

(h) Sale of Fixed Assets (Book value of ` 50,000) for ` 45,000

Current Ratio=2,00,000+45,000/1,00,000=2.45:1 (Improve)

(i) Sale of Fixed Assets (Book value of ` 50,000) for ` 60,000

Current Ratio =2,00,000+60,000/1,00,000=2.6:1 (Improve)

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*Ts Grewal Solution 2022-2023*

**Class 12 / Volume – 3**

**Chapter 4 – Accounting Ratios**

#### Question No. 1 To 5

Question No. 6 To 10

Question No. 11 To 15

Question No. 16 To 20

Question No. 21 To 25

Question No. 26 To 30

Question No. 31 To 35

Question No. 36 To 40

Question No. 41 To 45

Question No. 46 To 50

Question No. 51 To 55

Question No. 56 To 60

Question No. 61 To 65

Question No. 66 To 70

Question No. 71 To 75

Question No. 76 To 80

Question No. 81 To 85

Question No. 86 To 90

Question No. 91 To 95

Question No. 96 To 100

Question No. 101 To 105

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