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✦ FREE LEARNING — CLASS 11 & 12 — CBSE · PSEB — ACCOUNTS · ECONOMICS · BST ✦
A firm had Current Assets of ₹5,00,000. It paid Current Liabilities of ₹1,00,000, and the Current Ratio became 2:1. Determine the Current Liabilities and Working Capital before and after the payment was made.
Paying off ₹1,00,000 of liabilities decreases both Current Assets and Current Liabilities by the same amount.
After the payment: Current Assets = 5,00,000 − 1,00,000 = ₹4,00,000. Let Current Liabilities before payment be x, so Current Liabilities after = x − 1,00,000.
New Current Ratio: 4,00,000 ÷ (x − 1,00,000) = 2:1
4,00,000 = 2x − 2,00,000
2x = 6,00,000
x = ₹3,00,000 (Current Liabilities before payment)
Current Liabilities after payment = 3,00,000 − 1,00,000 = ₹2,00,000
Working Capital after payment = Current Assets − Current Liabilities = 4,00,000 − 2,00,000 = ₹2,00,000
Working Capital before payment = Current Assets − Current Liabilities = 5,00,000 − 3,00,000 = ₹2,00,000
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.14 - 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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