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M co has a current ratio of 2:1
this ratio will decrease if
a. receives cash in respect of a long term loan
b. receives cash in respect of a short term loan
c. pays existing trade payable
d. writes off a an existing receivalbe debt against provision for doubtful debtsb is the answer
a. is understandable
b: short term loan is current liability. so, it shd not have any affect on the ration since curr. assets will rise, and so will curr. liab.
d. this shd decrease the Receivable figure and it should decrease the ration. this was my answer…:(
i dont get y b is correct?
d is wrong, because on the Statement of financial position it is net receivables that are included in current assets. Net receivables are receivables less allowance for receivables. If we reduce receivables (because of irrecoverable) and at the same time reduce the allowance (we stopped calling it provision many years ago), then net receivables will be unchanged.
The will both rise, but the ratio will fall.
Suppose current assets are 100 and current liabilities are 50. The ratio is 2:1
Suppose they both increase by 10, to 110 and to 60. Check what happens to the ratio!
yes…. thank u….
by the way.. ur lectures on consolidated balance sheet are fantastic!
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