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Question 21 Chapter 4 of +2-B
I. Liquidity Ratios
21. (Current Assets & Working Capital after & before the Acquisition of Stock) A firm had current liabilities of ₹ 1,25,000. It then acquired stock in trade at a cost of ₹ 25,000 on credit. After this acquisition, the current ratio 2 : 1. Determine the size of current assets and working capital after and before the inventories was acquired.
| Current Liabilities before purchasing of stock on credit | = | ₹ 1,25,000 |
| Stock purchase on credit | = | ₹ 25,000 |
| Current Liabilities after the purchase of stock on credit | = | ₹ 1,50,000 |
| Current Ratio after the purchase of stock | = | 2: 1 |
| If Current Liabilities | = | ₹ 1,50,000 or 1 |
| Current Assets | = | ₹ 1,50,000 x 2 |
| = | ₹ 3,00,000 | |
| Current Assets before Purchase of stock | = | ₹ 3,00,000 - ₹ 25,000 |
| = | ₹ 2,75,000 |
Working Capital
Before Purchase of stock
| Working Capital | = | Current Assets – Current Liability |
| = | ₹ 2,75,000 - ₹ 1,25,000 | |
| = | ₹ 1,50,000 |
After Purchase of stock
| Working Capital | = | Current Assets – Current Liability |
| = | ₹ 2,75,000 - ₹ 1,25,000 | |
| = | ₹ 1,50,000 |
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Accounting & Commerce Educator
Sarbjit Singh holds a B.Com and M.Com degree and has over 12 years of teaching experience in double entry bookkeeping, financial accounting, and business studies.
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