12th | Accounting Ratio | Question No. 16 To 20 | Ts Grewal Solution 2023-2024

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.

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 dishonored (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) 

From the following information, calculate Liquid Ratio:      

Quick Assets or Liquid Assets = Currents Assets – Inventories – Pre-paid Expenses
=  ` 4,00,000 –  ` 1,00,000 –  ` 20,000 =  ` 2,80,000
Current Liabilities =  ` 1,40,000

Current ratio= liquid assets or quick assets/Current liabilities=2,80,000/1,40,000=2:1

Quick Ratio = Quick Assets/Current Liabilities

Quick Ratio = 6,00,000/4,00,000

Quick Ratio = 1.5/1

Working Notes:

Current Assets = Total Assets –(Property, Plant and Equipment (Fixed Assets) -Non-current Investments-+Long-term Loans & Advances)

8,00,000=16,00,000-(6,00,000+1,00,000+1,00,000)

Quick Assets= Current Assets –(Inventories+Prepaid Expenses)

6,00,000 =8,00,000-(1,90,000+10,000)

Current Liabilities= Total Debt - (Long-term Borrowings+Long-term Provisions)

4,00,000=12,00,000-(4,00,000+4,00,000)

Quick Assets `3,00,000; Inventory (Stock) `80,000; Prepaid Expenses `20,000; Working Capital `2,40,000. Calculate Current Ratio.

Current Assets= Quick Assets +Inventory (Stock) +Prepaid Expenses

Current Assets= 3,00,000+ 80,000+20,000

Current Assets= 4,00,000

Current Liabilities = Current Assets- Working Capital

Current Liabilities = 4,00,000 - 2,40,000

Current Liabilities = 1,60,000

Current Assets `6,00,000; Inventories `1,20,000; Working Capital `5,04,000. Calculate Quick Ratio.