SOLUTION
Firm disposed off liabilities of Rs. 1,00,000 which results in decrease in current liabilities and current assets by the same amount.
After disposing liabilities:
Current Assets = Rs. 4,00,000 (Rs. 5,00,000 – Rs. 1,00,000)
And, Let Current Liabilities be (x – Rs. 1,00,000)
Current ratio = Current assets / Current liabilities
2: 1 = 4,00,000 / (x – 1,00,000)
4,00,000 = 2x – 2,00,000
6,00,000 = 2x
Therefore, x = 3,00,000
Current Liabilities after payment = x – Rs. 1,00,000
= Rs. 2,00,000
Working Capital after Payment = Current Assets – Current Liabilities
= Rs. 4,00,000 – Rs. 2,00,000
= Rs. 2,00,000
Current Assets before payment = Rs. 5,00,000
Current Liabilities before Payment = Rs. 3,00,000
Therefore, Working Capital Before Payment = Current Assets – Current Liabilities
= Rs. 5,00,000 – Rs. 3,00,000 = Rs. 2,00,000