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Ratio of Current Assets (Rs. 3,00,000) to Current Liabilities (Rs. 2,00,000) is 1.5: 1. The accountant of the firm interested is maintain in  a Current Ratio of 2: 1 by paying off a part of the Current Liabilities. Compute amount of the Current Liabilities that should be paid so that the Current Ratio at the level of 2: 1 may be maintained.

SOLUTION

Current ratio = Current assets / Current liabilities
 = 1.5: 1
The company is interested in maintaining the Current Ratio of 2: 1 by paying off the liability.

Let the liability paid-off by the company = x
∴ New Current Assets = 3,00,000 − x
New Current Liabilities = 2,00,000 − x
New Current ratio = (3,00,000 – x )/ (2,00,000 – x)
 = 2: 1
Or 3,00,000 – 3x
 = 4,00,000 – 2x
Or 1,00,000

Therefore, liability of Rs. 1,00,000 need to be paid-off by the company in order to maintain the Current Ratio of 2: 1.


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