Basic Financial Accounting

Basic Financial Accounting 1. Current Ratio of the fast is 2:1. a. To pay a electric trustworthy indebtedness: (Improve) Given the give in situation, where the modern assets are 2 times the original liabilities, compensable off a on-going financial obligation would definitely correct the accepted ratio. Since the circulating(prenominal) ratio is 2:1, let us assume that on-line(prenominal) assets equal Rs.200 and latest liabilities equal Rs.100. Let us further assume that Rs.20 in capital is apply to pay off Rs.20 in authorized liabilities. The new veritable ratio would be Rs.180/Rs.80 = 2.25:1, which is an increase everywhere the old veritable ratio of 2:1. Thereby, it is clear that this contribute alone increase the current ratio. b. To sell a tantalize car for cash in at a slight issue: (Improve) Selling a force back car (fixed asset), flush at a loss, lead non affect the cu rrent financial 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 make better the current ratio. c. To borrow currency on an intimacy port wine 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 modification) purchase stocks(curr ent 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 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, erect it on our website: BestEssayCheap.com

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