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

Question 14 Chapter 4 of +2-B
Question No. 14 - Chapter No.4 - T.S. Grewal +2 Book Part B

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Question 14 Chapter 4 of +2-B

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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 ChangeThere 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 changeBecause 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 changeThere is an amount of Cash (Current Assets) is Decline equally to Current Assets increase.
(d) Payment of Dividend payableNo changeThere is a number of Current Assets are Decline equally to the Amount of Current liability.
(e) Bills Payable Discharged.No ChangeWith this transaction, the Current Assets value decrease besides this current liability also decrease.
(f) Bills Receivable endorsed to a creditorsNo ChangeThere 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 ChangeThe amount of Current Asset is Increased equally to Current Liability.

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Case II :-

Transactions

Impact on Current Ratio

Reason
(a) Cash paid to Trade Payables.ReduceThere 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.ImproveBecause 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 changeThere is an amount of Cash (Current Assets) is Decline equally to Current Assets increase.
(d) Payment of Dividend payableReduceThere 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.ReduceWith this transaction, the Current Assets value decrease besides this current liability also decrease.
(f) Bills Receivable endorsed to a creditorsReduceThere is a decrease in the number of Current Assets and Current liabilities with the same Figures.
(g) Bills Receivable endorsed to a creditors
dishonoured.
ImproveThe amount of Current Asset is Increased equally to Current Liability.



Balance Sheet: Meaning, Format & Examples

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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)

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

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

Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication

Question 1 Chapter 1 of +2-B
T.S. Grewal’s Analysis of Financial Statements

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