Question

1.) SALE OF MARKETABLE SECURITIES WILL RESULT IN: INFLOW OF CASH, NO FLOW OF CASH OR OUTFLOW OF CASH. GIVE REASON.
2.)ASSUMING THAT THE CURRENT RATIO IS 2:1 STATE GIVING REASON WHETHER THE RATIO WILL IMPROVE, DECLINE OR WILL HAVE NO CHANGE IN CASE BILLS RECEIVABLESIS DISHONOURED.

Answer 1

1. Sale of marketable securities will not result in any flow of cash as Marketable securities are considered as Cash and Cash Equivalents. Since they are already treated as cash, its sale will not have any effect on the Cash balance.

2.Dishonour of Bills Receivable will have the following two effects:
1) Decrease in Bills Receivable
2) Increase in Debtors

Since Bills Receivable and Debtors, both form part of Current Assets. Its increase and decrease will have no effect on the total value of current assets. Thus, Current Ratio will not show any change when bills receivable is dishonoured.

Hope this clarifies your doubt.

Answer 2

1) Sale of securities will lead to cash inflow as they are dealt through sock exchange or security dealers, so they could not be sent on credit.

2) When bills get dishonored,

Case 1-the entry would be passed to make person( who has dishonored the bill) as again debtor. In this case there would be no change in the current ratio.

Case 2- it is considered as bad debt, then, the current ration will decline. As denominator will be less than before.