which could account for the change in current ratio
one reason.
Answers
Answer:
A decline in this ratio can be attributable to an increase in short-term debt, a decrease in current assets, or a combination of both. Regardless of the reasons, a decline in this ratio means a reduced ability to generate cash. ... Merely paying off some current liabilities can improve your current ratio.
Answer:
In such questions it is better to assume amounts of currents assets (CA) and current liabilities (CL).It then becomes easy to determine effect of the transaction on the ratio. Current Ratio (Given) is 2:1 let us assume CA=Rs 20000 and CL=Rs 10000.
(i) Repayment of current liability will improve current ratio because fall in current asset will be less than twice the fall in current liability
(ii) Purchase of goods on cash will not change the current ratio , neither the total current assets nor the total current liabilites are affected since there is only a conversion of one current asset (cash) in ot another current asset (Goods).
(iii) sale of office equipment will improve the current ratio beacuse current asset (cash) will increase without any change in current liability.
(iv) Both the Total current Assets and total current liabilities are increased by the same amount .Therefore the current ratio will reduce
(v) Sale of goods for Rs 110000, cost being Rs 10000 will improve the current ratio because current asset (cash or trade receivables) will increase by Rs 1000
(vi) Payment of dividend will reduce the total of current assets and total of current liabilities by the same amount . Therefore the current ratio will improve