The current working capital ratio is 2:1 and the amount of current liability is Rs 75000. Then what is the amount of current assets ?
A150000
B225000
C37500
D75000
Answer:
A. 150000
Read Explanation:
Understanding the Current Ratio
- The Current Ratio, also known as the Working Capital Ratio, measures a company's ability to pay short-term obligations or those due within one year.
- The formula is: Current Ratio = Current Assets / Current Liabilities.
- It is a key indicator of liquidity and financial health in accounting.
Calculation Breakdown
- Given Ratio: 2:1 (which means for every Rs 1 of liability, there are Rs 2 of assets).
- Given Liability: Rs 75,000.
- Calculation: 2 = Current Assets / 75,000.
- Result: Current Assets = 2 * 75,000 = 150,000.
Relevant Accounting Concepts
- Current Assets: Cash, accounts receivable, inventory, and other assets expected to be converted into cash within one year.
- Current Liabilities: Obligations due within one year, including accounts payable, short-term debt, and accrued liabilities.
- Ideal Ratio: A ratio of 2:1 is generally considered ideal in many industries, representing a healthy balance between liquidity and efficiency.
- Working Capital: Defined as Current Assets - Current Liabilities. In this specific scenario, the Working Capital would be Rs 75,000 (150,000 - 75,000).