Question

Q. 25. The ratio of Current Assets (32,00,000) to Current Liabilities
(20,00,000) is 1.6 : 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 the
amount of the Current Liabilities that should be paid, so that the Current Ratio at the
level 2:1 may be maintained. ​

Answer 1

Answer:

Current Liabilities of Rs 8,00,000 to be paid off by company to maintain the Current Ratio of 2 : 1

Explanation:

Given :

Current Assets = 32,00,000

Current Liabilities = 20,00,000

Current ratio = 1.6 : 1

The accountant wants to maintain a Current Ratio of = 2 : 1

To find :

Current Liabilities that should be paid, so that the Current Ratio at the level 2 : 1 may be maintained

Solution :

Current Ratio = Current Assets / Current Liabilities

$\tt{Current \: Ratio = \dfrac{Current\:Assets}{Current\:Liabilities}}$

$\tt{Current\: Ratio \: = \dfrac{32,00,000}{20,00,000}}$

$\tt{Current \: Ratio \: = \dfrac{1.6}{1}}$

Let,

Liabilities paid off by the company = x

New Current Assets = 32,00,000 - x

New Current Liabilities = 20,00,000 - x

⇒ New Current Ratio = 2 : 1

⇒ $\tt{\dfrac{32,00,000 \: - \: x}{20,00,000 \: - \: x} \: = \:\dfrac{2}{1}}$

⇒ 32,00,000 - x = 40,00,000 - 2x

⇒ - x + 2x = 40,00,000 - 32,00,000

⇒ x = 8,00,000

Therefore,

Current Liabilities of Rs 8,00,000 to be paid off by company to maintain the Current Ratio of 2 : 1