Volume2-2023-24

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.

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

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.

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.

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.

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.

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.

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

(Before) Current Liabilities of `5,40,000.

Current Ratio was 2:1 (After the purchase of stock)

(Before) Current Assets = ? (x)

2/1=x+60,000/5,40,000+60,000

x+60,000=10,80,000+1,20,000

x=12,00,000-60,000

(Before) Current Assets  x=11,40,000

(After) Current Assets  x=11,40,000+60,000=12,00,000

(After) Current Liabilities of `5,40,000+60,000=6,00,000

Working Capital after purchase=12,00,000-6,00,000=6,00,000

Working Capital before purchase=11,40,000-5,40,000=6,00,000