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      Question

      Which of the following transaction will affect the

      current ratio?
      A Debentures issued in consideration of Machinery purchased Correct Answer Incorrect Answer
      B Conversion of Debentures into Equity shares Correct Answer Incorrect Answer
      C Purchased goods on credit Correct Answer Incorrect Answer
      D Goods sold for cash Correct Answer Incorrect Answer

      Solution

      We can take an example and understand how (3) will affect current ratio: Current Asset and Current liability are 100 & 60 respectively. Current ratio will be 1.66. Now let’s assume we Purchased goods on credit amount to 10 Rs. So due to this transaction, both CA & CL will increase by 10 Rs. Current Asset and Current liability will now be 110 & 70 respectively. Current ratio will change to 1.57.

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