Basic Financial Accounting

Basic Financial Accounting














1. Current Ratio of the firm is 2:1.


a. To pay a electric trustworthy liability: (Improve)
Given the give in situation, where the modern assets are 2 times the original liabilities, compensable off a on-going liability would definitely correct the current ratio. Since the current ratio is 2:1, let us assume that current assets equal Rs.200 and current liabilities equal Rs.100. Let us further assume that Rs.20 in capital is apply to pay off Rs.20 in current liabilities. The new current ratio would be Rs.180/Rs.80 = 2.25:1, which is an increase over the old current ratio of 2:1. Thereby, it is clear that this leave alone increase the current ratio.


b. To sell a drive car for cash at a slight loss: (Improve)
Selling a force back car (fixed asset), even at a loss, will non affect the current liability 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 improve the current ratio.


c. To borrow currency on an intimacy port promissory note: (Reduce)
This will lead to a decline 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 change)
purchase stocks(current asset) with cash(current asset) will not change the current ratio since cash is converted into stock, which is just a trans social classation of one form of current asset into another 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, order it on our website: Orderessay



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