A company had Current Assets of Rs. 4,50,000 and Current Liabilities of Rs. 2,00,000. Afterwards it purchased goods for Rs. 30,000 on credit. Calculate Current Ratio after the purchase

SOLUTION

Current Assets = Rs. 4,50,000
Current Liabilities = Rs. 2,00,000

Purchase of Goods on Credit for Rs. 30,000 will have two effects:

Increase Stock by Rs. 30,000, Current Assets will thereby increase to Rs. 4,80,000 (Rs. 4,50,000+ Rs. 30,000)
Increase Creditors by Rs. 30,000 and therefore Current Liabilities will now be Rs. 2,30,000 (Rs. 2,00,000+ Rs. 30,000)

Current ratio = Current assets / Current liabilities
= 4,80,000 / 2,30,000
= 2.08: 1