Q. 5 DK Goel Accounting Ratios Solutions Class 12 CBSE (2024-25)
the solutions of Question number 5 of Accounting Ratios chapter 5 of DK Goel Class 12 CBSE (2024-25)
The Current Ratio of a Company is 3 : 1. State giving reasons which of the following suggestions would (i) improve; (ii) reduce; (iii) not change; the Current Ratio:-
(a) Payment of Trade Payables.
(b) Sale of goods costing ₹ 20,000 for ₹ 20,000 for Cash.
(c) Sale of goods costing ₹ 20,000 for ₹ 18,000 on Credit.
(d) Sale of goods costing ₹ 20,000 at a profit of ₹ 3,000.
(e) Purchase of goods on credit.
(f) Purchase of goods for cash.
(g) Purchase of machinery against long-term loan.
[Ans. (a) Improve; (b) No change; (c) Reduce; (d) Improve; (e) Reduce; (f) No Change; (g) No Change.]
Solution:-
The Current Ratio as given in the question is 3 : 1. In order to understand the question in a simple manner, It may be assumed that current assets are ₹ 3,00,000 and current liabilities are ₹ 1,00,000.
(a) Payment of Trade Payables:-
Let’s Suppose, Trade Payables are ₹ 3,00,000.
It will decrease Cash (Current Assets) and decrease Trade Payables (Current Liabilities) with the same amount.
(b) Sale of goods costing ₹ 20,000 for ₹ 20,000 for Cash:-
It will increase Cash (Current Assets) and decrease Inventory (Current Assets) with the same amount. It will not change the Current Ratio.
It will not change the Current Ratio.
(c) Sale of goods costing ₹ 20,000 for ₹ 18,000 on Credit:-
It will increase Debtors (Current Assets) less than the Inventory (Current Assets). It will reduce the Current Ratio.
It will reduce the Current Ratio.
(d) Sale of goods costing ₹ 20,000 at a profit of ₹ 3,000:-
It will increase Cash (Current Assets) more than reduce Inventory (Current Assets). It will Improve the Current Ratio.
It will improve the Current Ratio.
(e) Purchase of goods on credit:-
Let’s ₹ 50,000 is purchased on Credit.
It will increase Inventory (Current Assets) and increase Creditors (Current Liabilities) with the same amount.
It will reduce the Current Ratio.
(f) Purchase of goods for cash:-
Let’s suppose ₹ 50,000 goods are purchased for cash.
It will increase Inventory (Current Assets) and reduce Cash (Current Assets) with the same amount.
It will not change the Current Ratio.
(g) Purchase of machinery against long-term loan:-
It will not change both Current Assets and Current Liabilities.