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    Question

    A company has a Current Ratio of 3:1. If it pays a

    current liability of ₹50,000, what will be the effect on the Current Ratio?
    A Increase Correct Answer Incorrect Answer
    B Decrease Correct Answer Incorrect Answer
    C No Change Correct Answer Incorrect Answer
    D Can't be determined Correct Answer Incorrect Answer

    Solution

    Let's assume Current Assets (CA) = 3,00,000 and Current Liabilities (CL) = 1,00,000. Current Ratio = 3:1. After paying ₹50,000, CA become ₹2,50,000 and CL become ₹50,000. New Ratio = 2,50,000 / 50,000 = 5:1. Thus, the ratio increases.

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