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Accounting Ratios — Accountancy STD 12 Commerce — Question

CBSE BoardEnglish MediumSTD 12 CommerceAccountancyAccounting Ratios6 Marks
Question
State giving reason, whether the Current Ratio will improve or decline or will have no effect in each one of the following transactions if Current Ratio is (I) 2.5 : 1, (II) 1 : 1, (III) 0.75 : 1.
  1. Paid ₹ 50,000 to a Creditor.
  2. Sale of goods at a loss of 10%.
  3. Sale of a fixed asset for ₹ 1,00,000 (Book Value ₹ 1,20,000).
  4. Payment of outstanding salaries.
  5. Received ₹ 25,000 from a Debtor of ₹ 30,000 in full settlement of his account.
  6. Bills payable discharged on maturity.
  7. Bills Receivable drawn on debtor.
  8. Purchased goods on credit.
  9. Issued debentures to the vendors of machinery.
✓

Answer

S. No.
Effect on Current Ratio:
Reasons
If
Current
Ratio is
2.5 : 1
If
Current
Ratio is
1 : 1
If
Current
Ratio is
0.75 : 1
i.
Improve
No effect
Decline
Both the Current Assets and Current Liabilities are decreased by the same amount.
ii.
Decline
Decline
Decline
Current Assets are decreased by the amount of loss but Current Liabilities remain unchanged.
iii.
Improve
Improve
Improve
Current Assets are increased by ₹ 1,00,000 but Current Liabilities remain unchanged.
iv.
Improve
No effect
Decline
Both the Current Assets and Current Liabilities are decreased by the same amount.
v.
Decline
Decline
Decline
Current Assets are decreased by ₹ 5,000 but Current Liabilities remain unchanged.
vi.
Improve
No effect
Decline
Both the Current Assets and Current Liabilities are decreased by the same amount.
vii.
No effect
No effect
No effect
One Current Asset (Debtor) is converted into another Current Asset (B/R).
viii.
Decline
No effect
Improve
Both the Current Assets and Current Liabilities will increase by the same amount.
ix.
No effect
No effect
No effect
Neither the Current Assets nor the Current Liabilities are affected.

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