#### Question 11:

#### 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.

**Answer:**

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

#### Question
12:

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.

#### Answer:

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.

#### Question 13:

#### 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.

#### Answer:

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.

#### Question
14:

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.

#### Answer:

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

#### Question
15:

State giving reason, whether the Current Ratio will improve
or decline or will have no effect in each of the following transactions if
Current Ratio is 2:1:

(a) Cash paid to Trade Payables.

(b) Bills Payable discharged.

(c) Bills Receivable endorsed to a creditor.

(d) Payment of final Dividend already declared.

(e) Purchase of Stock-in-Trade on credit.

(f) Bills Receivable endorsed to a Creditor dishonoured.

(g) Purchases of Stock-in-Trade for cash.

(h) Sale of Fixed Assets (Book Value of `50,000) for `45,000.

(i) Sale of Fixed Assets (Book Value of `50,000)
for `60,000.

#### Answer:

Let’s
assume Current Assets as ` 2,00,000 and Current
Liabilities as ` 1,00,000

Current Ratio=Current Assets/Current Liabilities

Current Ratio=2,00,000/1,00,000=2:1

(a) Cash paid to Trade Payables (say ` 50,000)

Current Ratio =2,00,000−50,000/1,00,000−50,000=3:1 (Improve)

(b) Bills Payable discharged (say ` 50,000)

Current Ratio = 2,00,000−50,000/1,00,000−50,000=3:1 (Improve)

(c) Bills Receivable endorsed to a creditor (say ` 50,000)

Current Ratio =2,00,000−50,000/1,00,000−50,000=3:1 (Improve)

(d) Payment of final Dividend already declared (say ` 50,000)

Current Ratio =2,00,000−50,000/1,00,000−50,000=3:1 (Improve)

(e) Purchase of Stock-in-Trade on credit (say ` 50,000)

Current Ratio =2,00,000+50,000/1,00,000+50,000=1.67:1 (Decline)

(f) Bills Receivable endorsed to a Creditor dishonoured
(say ` 50,000)

Current Ratio =2,00,000+50,000/1,00,000+50,000=1.67:1 (Decline)

(g) Purchase of Stock-in-Trade for cash (say ` 50,000)

Current Ratio =2,00,000+50,000−50,000/1,00,000=2:1 (No effect)

(h) Sale of Fixed Assets (Book value of ` 50,000) for ` 45,000

Current Ratio=2,00,000+45,000/1,00,000=2.45:1 (Improve)

(i) Sale of Fixed Assets (Book value of ` 50,000) for ` 60,000

Current Ratio =2,00,000+60,000/1,00,000=2.6:1 (Improve)

**Class : 12th | Ts Grewal solution 2022-2023**

**Volume 3 | ****Chapter 4: ****Accounting Ratio**

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