Current Liabilities of company wer 100000 and its current Ratio was 2.5 :1.It paid 25000 to a creditor. Calculate current Ratio after the payment.

Explanation

Current Ratio =`("Current Assets")/("Current Liabilities") =(Rs 225000)/(Rs 75000)=3:1`
Working Note: As, current liabilities are Rs 100000 and current ratio is 2.5:1,
`therefore Current assets =Rs 100000xx2.5=Rs 250000.
After payment of Rs 25000 to a creditor, cash or bank (i.e curent assets) and creditors (i.e current liablilities ) both will reduce by Rs 25000 each .Thus,
Current assets =Rs 250000-Rs250000=Rs 225000, Current liabilites =Rs 100000-Rs 25000=Rs75000.