Q. 1. The current ratio of Y Ltd. is 2:1 state, with reason which of the following transaction
would
(1) Increase (I1) Decrease or (II) not change the ratio:
(1) trade Receivables includes Debtors of 240,000 which were received (II) company purchased furniture of 245,000 the vendor was paid by issue of equity
shares of 10 each at par.
Answers
Explanation:
The given current ratio is 2:1. Let us assume the current assests are Rs. 50,000 and current liabilities are Rs. 25,000, Thus, the current ratio is 2:1 Now we will analyse the effect of given transactions on current ratio. <br> (a) Assume that Rs. 10,000 of creditors is paid by cheque. This will reduce the current assets to Rs. 40,000 and current liabilities to Rs. 15,000. The new ratio will be 2.67 : 1 (Rs. 40,000/Rs. 15,000). Hence, it has improved. <br> (b) Assume that goods of Rs. 10,000 are purchased on credit. This will increase the current assets to Rs.60,000 and current liabilities to Rs. 35,000. The new ratio will be 1.7:1 (Rs. 60,000/Rs. 35000). Hence, it has reduced. <br> (c ) Due to sale of a computer (a fixed asset) the current assets will increase to Rs. 53,000 without any change in the current liabilities. The new ratio will be 2.12:1 (Rs.000/Rs. 25,000). Hence, it has improved. <br> (d) This transaction will decrease the inventories by Rs. 10,000 and increase the cash by Rs. 11,000 thereby increasing the current assets by Rs. 1,000 without any change in the current liabilities. The new ratio will be 2.04 : 1 (Rs. 51,000/Rs. 25,000). Hence, it has improved. <br> (e) Assume that Rs. 5,000 is given by of dividend. It will reduce the current assets to Rs. 45,000 and short-term provisions. (current liabilities) by Rs. 5,000. The ratio will be 2:25:1 (Rs.45,000/Rs.20,000). Hence, it has improved.