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A firm has Current Ratio of 2 and Current Liabilities ₹4,00,000. If it pays off ₹1,00,000 of Current Liabilities using Cash, the new Current Ratio becomes:
A2.33
B2
C2.5
D3
Answer & Solution
Correct answer: A. 2.33
1. Initial Current Assets = 2 × 4,00,000 = ₹8,00,000.
2. After paying ₹1,00,000: Current Assets = 7,00,000; Current Liabilities = 3,00,000.
3. New Current Ratio = 7,00,000 / 3,00,000 ≈ 2.33.
_Source: ICAI BoS CA Inter Paper 6A, Ch 3 "Financial Analysis and Planning — Ratio Analysis", §3.1(a)_
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