Blog

Ratio of Current Assets (Rs. 8,75,000) to Current Liabilities (Rs. 3,50,000) is 2.5: 1. The firm wants to maintain Current Ratio of 2: 1 by purchasing goods on credit. Compute amount of goods that should be purchased on credit.

SOLUTION

Current Assets = Rs. 8,75,000
Current Liabilities = Rs. 3,50,000
Current Ratio  = 2.5: 1
The business is interested to maintain its Current Ratio at 2: 1 by purchasing goods on credit.
Let the amount of goods purchased on credit be ‘x’
Current Liabilities = Rs. 3,50,000 + x
Current Assets = Rs. 8,75,000 + x
Current ratio = Current assets / Current liabilities
= (8,75,000 + x) / (3,50,000 + x) = 2 / 1
8,75,000 + x = 7,00,000 + 2x
8,75,000 – 7,00,000 = 2x – x
1,75,000 = x
Therefore, goods worth Rs. 1,75,000 must be purchased on credit to maintain the current ratio at 2: 1.


Leave a Reply