Basic Financial Accounting

Basic Financial Accounting 1. Current Ratio of the debauched is 2:1. a. To pay a electric trustworthy obligation: (Improve) Given the give in situation, where the modern assets are 2 times the original liabilities, compensable off a on-going indebtedness would definitely correct the genuine ratio. Since the incumbent ratio is 2:1, let us assume that menstruation assets equal Rs.200 and true liabilities equal Rs.100. Let us further assume that Rs.20 in capital is apply to pay off Rs.20 in topical liabilities. The new received ratio would be Rs.180/Rs.80 = 2.25:1, which is an increase oer the old stream ratio of 2:1. Thereby, it is clear that this desert alone increase the current ratio. b. To sell a oblige car for cash at a slight way out: (Improve) Selling a force back car (fixed asset), withal at a loss, willing non affect the current obligation in any way. rather it involves cash inflow; the cash received from selling the motor car would add to the current asset which will in beat boost the current ratio. Therefore selling a motor car (even though sold at a slight loss) will cleanse the current ratio. c. To borrow currency on an intimacy way promissory note: (Reduce) This will lead to a ebb in the current ratio.

short-term borrowings add to the current liability of the company which in turn will reduce the current ratio. d. To purchase stocks for cash: (No diversify) purchase stocks(current asset) with cash(current asset) will not chan ge the current ratio since cash is converted! into stock, which is just a trans social classation of one form of current asset into some other form. e. To give an interest bearing promissory note to a creditor to whom money was owed on current account: (No change) This also will not change the current ratio. The money which was owed on current account is just issued as a promissory note. Since the promissory note is interest bearing, the interest payable on the current account is...If you want to bind a full essay, set it on our website: BestEssayCheap.com

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