Q.Current Ratio is 3.5:1. Working Capital is ₹90,000. Calculate the amount of Current Assets and Current Liabilities.

Showing the 12 most recent of 39 on this concept.

1. CBSE 2026Set 67/3/11 markMCQ
   Q.(a) Which of the following is a financial statement of a company ? (A) Common Size Statement of Profit and Loss (B) Statement of Profit and Loss (C) Comparative Balance Sheet (D) Comparative Statement of Profit and Loss

   (OR)

   (b) Which of the following is not a Solvency Ratio ? (A) Debt-Equity Ratio (B) Return on Investment (C) Interest Coverage Ratio (D) Proprietary Ratio

   ›Reveal solutionSolution

   Part (a): (B) Statement of Profit and Loss is a financial statement; the others are analytical tools. Part (b): (B) Return on Investment is a profitability ratio, not a solvency ratio.

   Part (a)

   Under the Companies Act, 2013 the financial statements are the primary, statutory statements: the Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement. Common Size and Comparative statements are analytical statements prepared from the financial statements for interpretation.

   Option	Nature
   (A) Common Size Statement of P&L	Analytical tool
   (B) Statement of Profit and Loss	Financial statement ✓
   (C) Comparative Balance Sheet	Analytical tool
   (D) Comparative Statement of P&L	Analytical tool

   ✓Final answer

   (B) Statement of Profit and Loss is the statutory financial statement.

   Part (b)

   Solvency ratios assess the ability to meet long-term obligations and the debt-equity mix; profitability ratios assess earning capacity.

   Option	Classification
   (A) Debt-Equity Ratio	Solvency
   (B) Return on Investment	Profitability ✗ (not solvency)
   (C) Interest Coverage Ratio	Solvency
   (D) Proprietary Ratio	Solvency

   Return on Investment = (Profit before Interest & Tax ÷ Capital Employed) × 100 measures profit generation, not long-term solvency.

   ✓Final answer

   (B) Return on Investment is not a solvency ratio — it is a profitability ratio.

2. CBSE 2026Set 67/3/11 markMCQ
   Q.The Current Ratio of Megh Raj Ltd. is 1·5 : 1. Which of the following transactions will reduce the ratio ? (A) Sale of furniture of ₹ 18,000 at a loss of ₹ 2,000 (B) Goods purchased on credit ₹ 75,000 (C) Sale of goods costing ₹ 60,000 for ₹ 80,000 (D) Payment of trade payables ₹ 40,000

   ›Reveal solutionSolution

   The transaction that will reduce the Current Ratio (from 1.5:1) is (B) Goods purchased on credit ₹ 75,000, because it increases current assets and current liabilities by the same amount, which lowers a ratio greater than 1:1.

   Concept First: Why the Current Ratio Changes

   The Current Ratio is Current Assets ÷ Current Liabilities. Megh Raj Ltd. has a ratio of 1.5:1 — meaning for every ₹1 of current liability, the firm holds ₹1.50 of current assets. This is a ratio greater than 1:1.

   Here is the key rule you must remember:

   Important

   When a ratio is greater than 1:1, adding an equal amount to both numerator (current assets) and denominator (current liabilities) reduces the ratio. When a ratio is less than 1:1, the same transaction increases the ratio.

   Why? Think of it as a fraction. If you have 3/2 = 1.5, and you add 1 to both top and bottom, you get 4/3 ≈ 1.33 — which is smaller. The same logic applies to any transaction that increases both current assets and current liabilities by the same rupee amount.

   Now let us examine each option.

   ---

   Analysing Each Transaction

   Option (A): Sale of furniture of ₹ 18,000 at a loss of ₹ 2,000

   Furniture is a non-current asset (fixed asset). Selling it converts it into cash (a current asset). The book value of the furniture is ₹ 20,000 (since loss of ₹ 2,000 on sale of ₹ 18,000 means cost was ₹ 20,000).

   • Effect on Current Assets: Cash increases by ₹ 18,000.
   • Effect on Current Liabilities: No change.
   • Effect on Current Ratio: Numerator increases, denominator unchanged → Ratio increases.

   So (A) does not reduce the ratio.

   ---

   Option (B): Goods purchased on credit ₹ 75,000

   • Effect on Current Assets: Inventory (stock) increases by ₹ 75,000.
   • Effect on Current Liabilities: Trade payables (creditors) increase by ₹ 75,000.
   • Effect on Current Ratio: Both numerator and denominator increase by the same amount (₹ 75,000). Since the original ratio is 1.5:1 (>1:1), this reduces the ratio.

   Let us verify with numbers. Suppose original current assets = ₹ 1,50,000 and current liabilities = ₹ 1,00,000 (ratio = 1.5:1). After the transaction:

   Current assets = ₹ 1,50,000 + ₹ 75,000 = ₹ 2,25,000

   Current liabilities = ₹ 1,00,000 + ₹ 75,000 = ₹ 1,75,000

   New ratio = 2,25,000 ÷ 1,75,000 = 1.2857:1 — which is lower than 1.5:1.

   So (B) reduces the ratio.

   Watch out

   A common mistake is to think that any increase in current liabilities reduces the ratio. That is only true if current assets do not also increase. Here, both increase equally, so the effect depends on whether the original ratio is above or below 1:1.

   ---

   Option (C): Sale of goods costing ₹ 60,000 for ₹ 80,000

   This is a credit sale (or cash sale — either way, the effect is the same on current assets and liabilities).

   • Effect on Current Assets:
     • Inventory decreases by ₹ 60,000 (cost of goods sold).
     • Debtors (or cash) increase by ₹ 80,000 (sale price).
     • Net increase in current assets = ₹ 80,000 – ₹ 60,000 = ₹ 20,000.
   • Effect on Current Liabilities: No change (assuming no credit purchase involved).
   • Effect on Current Ratio: Numerator increases by ₹ 20,000, denominator unchanged → Ratio increases.

   So (C) does not reduce the ratio.

   ---

   Option (D): Payment of trade payables ₹ 40,000

   • Effect on Current Assets: Cash decreases by ₹ 40,000.
   • Effect on Current Liabilities: Trade payables decrease by ₹ 40,000.
   • Effect on Current Ratio: Both numerator and denominator decrease by the same amount (₹ 40,000). Since the original ratio is 1.5:1 (>1:1), this increases the ratio.

   Let us check with the same assumed figures:

   After payment: Current assets = ₹ 1,50,000 – ₹ 40,000 = ₹ 1,10,000

   Current liabilities = ₹ 1,00,000 – ₹ 40,000 = ₹ 60,000

   New ratio = 1,10,000 ÷ 60,000 = 1.833:1 — which is higher than 1.5:1.

   So (D) does not reduce the ratio.

   Tip

   For quick recall: When both numerator and denominator change by the same absolute amount, the ratio moves towards 1:1. If the original ratio is above 1:1, it falls; if below 1:1, it rises. Payment of liabilities (reducing both) does the opposite — it moves the ratio away from 1:1.

   ---

   Final Answer

   ✓Final answer

   The transaction that will reduce the Current Ratio of Megh Raj Ltd. from 1.5:1 is (B) Goods purchased on credit ₹ 75,000. This is because it increases both current assets and current liabilities by the same amount, and when the original ratio exceeds 1:1, such an equal increase lowers the ratio.

3. CBSE 2026Set 67/4/11 markMCQ
   Q.(a) Which of the following statements are correct ? I. A low current ratio endangers the business and puts it at risk of facing a situation, where it will not be able to pay its short-term debts on time. II. Trade payables turnover ratio expresses the relationship between net credit sales and average trade payables. III. Operating profit ratio plus Gross profit ratio = 100. IV. Inventory turnover ratio determines the number of times inventory is converted into revenue from operations during the accounting period under consideration. Options : (A) I and II (B) II and III (C) III and IV (D) I and IV

   (OR)

   (b) Ratios that are calculated for measuring the efficiency of operations of business based on effective utilisation of resources are called : (A) Turnover ratios (B) Profitability ratios (C) Solvency ratios (D) Liquidity ratios

   ›Reveal solutionSolution

   Part (a): statements I and IV are correct - option (D). Part (b): turnover ratios measure operating efficiency - option (A).

   Part (a)

   Statement	Verdict	Reason
   I - low current ratio risks short-term default	Correct	Current ratio = CA / CL; a low value means weak short-term solvency
   II - payables turnover = net credit sales / avg payables	Incorrect	It uses net credit purchases; sales are used for receivables turnover
   III - Operating profit ratio + Gross profit ratio = 100	Incorrect	Operating profit = Gross profit - Operating expenses; they never sum to 100
   IV - inventory turnover = times inventory converted to revenue	Correct	Inventory turnover = Cost of revenue / Average inventory

   Only I and IV are correct.

   ✓Final answer

   Correct option is (D) I and IV.

   Part (b)

   Turnover (activity) ratios - e.g. inventory turnover, trade receivables/payables turnover, working-capital turnover - measure how efficiently a firm uses its resources to generate revenue. Profitability ratios measure profit, solvency ratios measure long-term stability, liquidity ratios measure short-term paying ability.

   ✓Final answer

   Correct option is (A) Turnover ratios.

4. CBSE 2026Set 67/5/11 markMCQ
   Q.(a) From the following information obtained from the books of accounts of Ananda Ltd., calculate ‘Quick Ratio’ of the company : Total Current Assets (including stock and prepaid expenses) ₹ 2,00,000; Stock ₹ 20,000; Prepaid expenses ₹ 10,000; Current liabilities ₹ 1,70,000. (A) 20 : 17 (B) 1 : 1 (C) 18 : 17 (D) 19 : 17

   (OR)

   (b) ‘Analysis of financial statements is useful and significant to different users.’ Which of the following users is concerned with a firm’s long-term solvency and survival ? (A) Labour unions (B) Trade payables (C) Finance manager (D) Lenders

   ›Reveal solutionSolution

   (a) Quick Ratio of Ananda Ltd. = 1 : 1 → option (B).

   (b) The user concerned with long-term solvency and survival is Lenders → option (D).

   Part (a)

   The Quick (Acid-Test) Ratio measures the ability to meet current liabilities from the most liquid assets, excluding Stock and Prepaid Expenses (which are not readily convertible to cash).

   Quick Assets = Current Assets − Stock − Prepaid Expenses = 2,00,000 − 20,000 − 10,000 = ₹1,70,000

   Quick Ratio = Quick Assets ÷ Current Liabilities = 1,70,000 ÷ 1,70,000 = 1 : 1

   ✓Final answer

   Quick Ratio = 1 : 1, i.e. option (B).

   Part (b)

   Financial-statement analysis serves different users with different concerns. Long-term solvency and survival — the firm's ability to pay long-term debts and continue in business — is primarily the concern of Lenders (providers of long-term finance). Trade payables focus on short-term liquidity, labour unions on profitability and job security, and the finance manager on overall internal management.

   ✓Final answer

   The correct answer is (D) Lenders.

5. CBSE 2026Set 67/5/11 markMCQ
   Q.The following information is obtained from the books of Devdutt Ltd. : Working capital – ₹ 4,00,000 Trade Payables – ₹ 50,000 Other Current liabilities – ₹ 1,00,000 Current assets of Devdutt Ltd. are : (A) ₹ 2,50,000 (B) ₹ 4,50,000 (C) ₹ 5,00,000 (D) ₹ 5,50,000

   ›Reveal solutionSolution

   The Current Assets of Devdutt Ltd. are calculated as ₹ 5,50,000 by using the working capital formula.

   Understanding a company's liquidity position is crucial for assessing its short-term financial health. One of the primary tools for this assessment is Liquidity Ratio Analysis, which includes calculating ratios like the Current Ratio and the Quick Ratio, and also understanding key components like Working Capital.

   Working Capital represents the excess of current assets over current liabilities. It indicates the funds available to a business for its day-to-day operations after meeting its short-term obligations. A positive working capital signifies that a company has enough current assets to cover its current liabilities, suggesting good short-term solvency.

   The fundamental formula for Working Capital is:

   Working Capital = Current Assets - Current Liabilities

   In this question, we are given the Working Capital and the components of Current Liabilities. Our goal is to determine the Current Assets. We can rearrange the formula to solve for Current Assets:

   Current Assets = Working Capital + Current Liabilities

   Let's break down the calculation.

   Working Notes

   1. Calculation of Total Current Liabilities:

      Current Liabilities are obligations that are expected to be settled within one year or the operating cycle of the business, whichever is longer.

      • Trade Payables = ₹ 50,000
      • Other Current Liabilities = ₹ 1,00,000 Total Current Liabilities = Trade Payables + Other Current Liabilities Total Current Liabilities = ₹ 50,000 + ₹ 1,00,000 = ₹ 1,50,000

   2. Calculation of Current Assets:

      Now that we have the total current liabilities and the working capital, we can find the current assets using the rearranged formula.

      • Working Capital = ₹ 4,00,000 (Given)
      • Total Current Liabilities = ₹ 1,50,000 (Calculated in Working Note 1) Current Assets = Working Capital + Total Current Liabilities Current Assets = ₹ 4,00,000 + ₹ 1,50,000 Current Assets = ₹ 5,50,000

   Tip

   Always ensure you correctly identify all components of Current Assets and Current Liabilities as per the accounting standards. Common current assets include inventory, trade receivables, cash and cash equivalents, and short-term investments. Common current liabilities include trade payables, short-term borrowings, provisions for employee benefits, and other current liabilities.

   The calculated Current Assets of ₹ 5,50,000 match option (D).

   ✓Final answer

   The Current Assets of Devdutt Ltd. are ₹ 5,50,000.

6. CBSE 2026Set MARCH1 mark
   Q.Will the current ratio increase or decrease when the current assets increase and the current liabilities remain unchanged?

   ›Reveal solutionSolution

   If current assets rise and current liabilities stay the same, the current ratio increases.

   Current Ratio = Current Assets / Current Liabilities.

   When current assets increase and current liabilities are unchanged, the numerator becomes larger while the denominator is constant, so the value of the ratio rises.

   Example: If Current Assets = 2,00,000 and Current Liabilities = 1,00,000, ratio = 2 : 1. If current assets rise to 2,50,000 (liabilities still 1,00,000), ratio = 2.5 : 1 - an increase.

   ✓Final answer

   It will increase.

7. CBSE 2026Set ANNUAL1 markMCQ
   Q.Gayatri Limited's current ratio is 0.5 : 1. What will the effect on the current ratio, if goods purchased for cash? A) Will increase B) Will decrease C) Cannot be determined D) No change

   ›Reveal solutionSolution

   A cash purchase of goods leaves the current ratio unchanged - option (D).

   Current ratio = Current Assets / Current Liabilities. When goods are bought for cash:

   • Inventory (a current asset) increases.
   • Cash (a current asset) decreases by the same amount.

   The two effects cancel, so total current assets stay the same, and current liabilities are not affected at all. With both numerator and denominator unchanged, the ratio stays at 0.5 : 1.

   (Note: the existing 0.5 : 1 level is irrelevant here because a cash purchase changes the composition of current assets, not their total.)

   ✓Final answer

   There is no change in the current ratio — option (D).

8. CBSE 2026Set ANNUAL1 markMCQ
   Q.The ideal current ratio is

   (a) 1 : 1

   (b) 2 : 1

   (c) 1 : 2

   (d) 1.5 : 1

   ›Reveal solutionSolution

   2:1 is the textbook "ideal" current ratio — ₹2 of current assets backing every ₹1 of current liabilities gives a comfortable safety margin for meeting short-term obligations.

   The Current Ratio = Current Assets ÷ Current Liabilities, and it measures a firm's ability to meet its short-term obligations out of its short-term (current) resources.

   A ratio of 2:1 has traditionally been regarded as the "ideal" or safe benchmark because:

   • It implies the firm has twice as many current assets as current liabilities, providing a buffer even if some current assets (such as inventory) prove slow or difficult to convert into cash quickly, or if some current assets turn out to be partly unrealizable.
   • It balances two competing concerns: too low a ratio (below 2:1, let alone below 1:1) signals genuine liquidity risk, while too high a ratio can indicate idle funds lying unused in current assets that could otherwise be invested more productively.

   This 2:1 benchmark is a general rule of thumb (actual acceptable ratios vary by industry), but for the purposes of this syllabus it is treated as the standard "ideal" figure, distinct from the 1:1 benchmark used for the stricter Quick/Liquid Ratio.

   ✓Final answer

   Option (b) "2 : 1" — this is the conventionally accepted ideal current ratio, indicating adequate short-term liquidity.

9. CBSE 2025Set 67/4/11 markMCQ
   Q.The Quick Ratio of a company is 2 : 1. Which of the following transactions will result in decrease of this ratio ? (A) Payment of outstanding salary (B) Cash received from debtors (C) Sale of goods at a profit (D) Purchase of goods for cash

   ›Reveal solutionSolution

   (D) Purchase of goods for cash decreases the Quick Ratio, because it converts a quick asset (cash) into inventory (not a quick asset) while current liabilities stay unchanged.

   Concept: Quick Ratio

   $\text{Quick Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}}$

   Quick assets = current assets − inventory − prepaid expenses (i.e. cash, marketable securities, debtors). Let quick assets $= 2x$ and current liabilities $= x$ (ratio $2:1$).

   Effect of Each Transaction

   (A) Payment of outstanding salary — a current liability paid in cash: both fall by the same amount $y$. New ratio $=\dfrac{2x-y}{x-y}$. Since $\dfrac{2x-y}{x-y}-2=\dfrac{y}{x-y}>0$, the ratio rises above $2:1$. (Paying a current liability improves a quick ratio that is above $1:1$.)

   (B) Cash received from debtors — cash up, debtors down; both are quick assets, so total quick assets and current liabilities are unchanged. Ratio unchanged.

   (C) Sale of goods at a profit — quick assets rise (cash/debtors up), liabilities unchanged. Ratio rises.

   (D) Purchase of goods for cash — cash (quick asset) falls by $y$, inventory (not a quick asset) rises, liabilities unchanged. New ratio $=\dfrac{2x-y}{x}<\dfrac{2x}{x}=2$. Ratio decreases.

   Only option (D) reduces the numerator while leaving the denominator unchanged, so it is the sole transaction that lowers the ratio.

   Watch out

   It is a common error to think paying off a current liability lowers the quick ratio. When the ratio starts above $1:1$, an equal reduction of numerator and denominator actually raises it — so option (A) increases the ratio, it does not decrease it.

   ✓Final answer

   (D) Purchase of goods for cash — it is the only transaction that decreases the Quick Ratio.

10. CBSE 2025Set 67/5/11 markMCQ
    Q.Operating ratio of a company is 63%. Its gross profit ratio is 20%. What will be its operating profit ratio ? (A) 37% (B) 23% (C) 43% (D) 83%

    (OR)

    Which of the following is not a purpose of analysis of financial statements ? (A) To assess the current profitability and the operational efficiency of the firm. (B) To ascertain the relative importance of different components of financial position of the firm. (C) To just study the reports of the company. (D) To judge the ability of the firm to repay its debt.

    ›Reveal solutionSolution

    Part (a): Operating Profit Ratio = 100% − 63% = 37% — option (A). Part (b): (C) To just study the reports of the company.

    Part (a)

    The Operating Ratio measures operating cost as a percentage of revenue from operations, while the Operating Profit Ratio measures operating profit as a percentage of the same revenue. Since operating cost and operating profit together make up the whole of revenue from operations:

    Operating Ratio + Operating Profit Ratio = 100%

    Therefore:

    Operating Profit Ratio = 100% − Operating Ratio = 100% − 63% = 37%

    The gross profit ratio (20%) is additional information and is not required — using it (for example, 63% − 20%) would be a mistake.

    ✓Final answer

    Operating Profit Ratio = 37% — option (A).

    Part (b)

    The purposes of financial-statement analysis include assessing current profitability and operational efficiency (A), judging the relative importance of the components of the financial position (B), and judging the firm's ability to repay its debts (D). Option (C), "to just study the reports of the company," is mere passive reading — the word "just" signals that it is not an analytical purpose.

    ✓Final answer

    (C) To just study the reports of the company.

11. CBSE 2025Set MARCH1 markMCQ
    Q.Which of the following is not included to compute current ratio?

    (a) Debtors

    (b) Stock

    (c) Bills receivables

    (d) Furniture

    ›Reveal solutionSolution

    Current ratio = Current assets ÷ Current liabilities; debtors, stock and bills receivable are current assets, but furniture is a fixed asset and is excluded. Correct option: (d).

    In GSEB Class-12 Commerce Accountancy (Accounting Ratios):

    • Current assets include debtors, stock (inventory), bills receivable, cash, marketable securities, prepaid expenses.

    • Furniture is a fixed/non-current asset, so it is not included in computing the current ratio.

    ✓Final answer

    (d) Furniture.

12. CBSE 2025Set ANNUAL1 mark
    Q.Find the value of current Assets from the following information - Current Ratio 2 : 1, Current Liability ₹ 5,00,000

    ›Reveal solutionSolution

    Current Ratio 2 : 1 and Current Liabilities ₹5,00,000 give Current Assets = ₹10,00,000.

    The current ratio relates current assets to current liabilities:

    Current Ratio = Current Assets ÷ Current Liabilities

    Particulars	Amount
    Current Ratio	2 : 1
    Current Liabilities	₹5,00,000
    Current Assets = 2 × 5,00,000	₹10,00,000

    This liquidity-ratio calculation is a standard RBSE Rajasthan Class-12 Accountancy item, aligned with the NCERT/CBSE commerce syllabus.

    ✓Final answer

    Current Assets = ₹10,00,000.