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

Question 14 Chapter 4 of +2-B

Table of Contents

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

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

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

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:

Cash paid to Trade Payables.
Purchase of Stock-in-Trade on credit.
Purchase of Stock-in-Trade for cash.
Payment of Dividend payable.
Bills Payable Discharged.
Bills Receivable endorsed to creditors.
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.