Question 13 Marks
The current ratio of Y Ltd is 2 : 1. State with reason, which of the following transactions would (a) increase, (b) decrease (c) not change the ratio.
i. Trade receivables included debtors of ₹ 40,000 which were received earlier.
ii. Company purchased furniture of ₹ 45,000. The vendor was paid by the issue of equity shares of ₹ 10 each at par.
i. Trade receivables included debtors of ₹ 40,000 which were received earlier.
ii. Company purchased furniture of ₹ 45,000. The vendor was paid by the issue of equity shares of ₹ 10 each at par.
Answer
View full question & answer→i. Not change the ratio Simultaneous increase and decrease by the same amount in current assets will not effect the value of current assets or current liabilities therefore, there is no effect on the current ratio. Because first debtors are reduced from Rs40000 and by the same amount cash will be increased.
ii. Not Change the ratio Issue of shares for furniture purchased do not effect either current assets or current liabilities. Because Shares are a part of Share Capital which is classified under Shareholder's Fund & furniture is Fixed asset. Therefore, the current ratio will not change.
ii. Not Change the ratio Issue of shares for furniture purchased do not effect either current assets or current liabilities. Because Shares are a part of Share Capital which is classified under Shareholder's Fund & furniture is Fixed asset. Therefore, the current ratio will not change.