Question 14 Chapter 4 of +2-B - T.S. Grewal 12 Class

Question 14 Chapter 4 of +2-B

Current Ratio and Quick Ratio

14. State giving reasons, which of the following transactions would improve,
reduce or not change the Current Ratio, if Current Ratio of a company is (1 :
1; or 0.8 : 1:

1. Cash paid to Trade Payables.
2. Purchase of Stock-in-Trade on credit.
3. Purchase of Stock-in-Trade for cash.
4. Payment of Dividend payable.
5. Bills Payable Discharged.
6. Bills Receivable endorsed to creditors.
7. Bills Receivable endorsed to a creditor dishonoured.

The solution of Question 14 Chapter 4 of +2-B: -

Case I :-

Transactions	Impact on Current Ratio	Reason
(a) Cash paid to Trade Payables.	No Change	There is a decrease in the number of Current Assets and Current liabilities in the same Figure.
(b) Purchase of Stock-in-Trade on credit.	No change	Because there is an increase in the number of Current Assets and Current liabilities in the same Figure.
(c) Purchase of Stock-in-Trade for cash.	No change	There is an amount of Cash (Current Assets) is Decline equally to Current Assets increase.
(d) Payment of Dividend payable	No change	There is a number of Current Assets are Decline equally to the Amount of Current liability.
(e) Bills Payable Discharged.	No Change	With this transaction, the Current Assets value decrease besides this current liability also decrease.
(f) Bills Receivable endorsed to a creditors	No Change	There is a decrease in the number of Current Assets and Current liabilities with the same Figures.
(g) Bills Receivable endorsed to a creditors dishonoured.	No Change	The amount of Current Asset is Increased equally to Current Liability.

Case II :-

Transactions	Impact on Current Ratio	Reason
(a) Cash paid to Trade Payables.	Reduce	There is a decrease in the number of Current Assets and Current liabilities in the same Figure but, The amount of Current Assets is less than Current Liability.
(b) Purchase of Stock-in-Trade on credit.	Improve	Because there is an increase in the number of Current Assets and Current liabilities in the same Figure.
(c) Purchase of Stock-in-Trade for cash.	No change	There is an amount of Cash (Current Assets) is Decline equally to Current Assets increase.
(d) Payment of Dividend payable	Reduce	There is a number of Current Assets is Decline equally to the Amount of Current liability but, Current Assets is reduced More than Current Liabilities.
(e) Bills Payable Discharged.	Reduce	With this transaction, the Current Assets value decrease besides this current liability also decrease.
(f) Bills Receivable endorsed to a creditors	Reduce	There is a decrease in the number of Current Assets and Current liabilities with the same Figures.
(g) Bills Receivable endorsed to a creditors dishonoured.	Improve	The amount of Current Asset is Increased equally to Current Liability.

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Also, Check out the solved question of previous Chapters: -

T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)

• Chapter No. 1 - Financial Statement of Not-For-Profit Organisations
• Chapter No. 2 - Accounting for Partnership Firms - Fundamentals
• Chapter No. 3 - Goodwill: Nature and Valuation
• Chapter No. 4 - Change in Profit-Sharing Ratio Among the Existing Partners
• Chapter No. 5 - Admission of a Partner
• Chapter No. 6 - Retirement/Death of a Partner
• Chapter No. 7 - Dissolution of a Partnership Firm

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 8 - Company Accounts -  Accounting for Share Capital
• Chapter No. 9 - Company Accounts - Issue of Debentures
• Chapter No. 10 - Redemption of Debentures

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 1 - Financial Statements of a Company
• Chapter No. 2 - Financial Statement Analysis 
• Chapter No. 3 - Tools of Financial Statement Analysis - Comparative Statements and Common- Size Statements
• Chapter No. 4 - Accounting Ratios
• Chapter No. 5 - Cash Flow Statement

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