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✦ FREE LEARNING — CLASS 11 & 12 — CBSE · PSEB — ACCOUNTS · ECONOMICS · BST ✦
Ratio of Current Assets (₹3,00,000) to Current Liabilities (₹2,00,000) is 1.5:1. The accountant of the firm is interested in maintaining a Current Ratio of 2:1 by paying off a part of the Current Liabilities. Compute the amount of Current Liabilities that should be paid so that the Current Ratio at the level of 2:1 may be maintained.
Current Ratio = Current Assets ÷ Current Liabilities = 1.5:1
Let the liability paid off by the company = x (paying off a liability reduces both Cash and Trade Payables by the same amount).
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
3,00,000 − x = 2(2,00,000 − x) = 4,00,000 − 2x
2x − x = 4,00,000 − 3,00,000
x = ₹1,00,000
Therefore, a liability of ₹1,00,000 needs to be paid off by the company in order to maintain the Current Ratio at 2:1.
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.
This guide covers "T.S. Grewal Class 12 Vol 3 Chapter 4 Q.12 - Accounting Ratios", focusing on key definitions, step-by-step concepts, applications, and revision guidelines relevant to Chapter 4 - Accounting Ratios.
It is primarily curated for Class 11 and Class 12 high school commerce, accounting, and economics students, as well as aspirants preparing for board exams or CA Foundation.
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