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Sir when calculate the current asset, part of sales proceed will be add into CA after deduct the loan notes , there is a part I confuse is why i had to deduct the portion of ( CL* CURRENT RATIO). Could u explain on the reason. thank you
Because of note 2 of the question, the current ratio needs to be 1.5, therefore they need to end up with the current assets being 1.5 times the current liabilities.
The current liabilities are 2,166, therefore the current assets must end up being 1.5 x 2,166 = $3,249.
The sale proceeds are 7,674 (initially into cash) which increases the existing current assets of 2,347 to 10,021 and so for the current assets to end up as 3,249, the difference of 6,772 is paid out of cash – $3,200 to pay of the loan notes and the remaining 3,572 to increase non-current assets.
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