Accounting Ratios · Class 12 · CBSE · Commerce Accountancy
Which of the following transactions will improve the Current Ratio?
Practice question from Accounting Ratios (Class 12 · CBSE · Commerce Accountancy), with the correct answer and a step-by-step solution.
medium · MCQ · Q-8A4A1F
Which of the following transactions will improve the Current Ratio?
- A.Payment to a trade payable
- B.Purchase of goods on credit
- C.Sale of goods for cash at cost
- D.Issuance of equity shares for cashCorrect answer
Solution
Issuance of equity shares for cash increases current assets (Cash/Bank) without affecting current liabilities, thereby improving (increasing) the Current Ratio. Paying a trade payable reduces both current assets and current liabilities by the same amount, which improves the ratio only if the initial ratio was greater than 1. However, issuance of shares definitely increases current assets while current liabilities remain unchanged.
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