Question 28 of 47intermediate🔧 ApplyNumerical3 marks

Current Ratio is 3.5 : 1. Working Capital is Rs. 90,000. Calculate the amount of Current Assets and Current Liabilities.

Correct Answer

Given: Current Ratio = 3.5 : 1 Working Capital = Rs. 90,000

Let Current Liabilities be = xx Then, Current Assets = 3.5x3.5x (based on the ratio)

We know that: Working Capital = Current Assets – Current Liabilities Substituting the values: Rs. 90,000 = 3.5x–x3.5x – x Rs. 90,000 = 2.5x2.5x

x=90,0002.5x = \frac{90,000}{2.5} x=36,000x = 36,000

Therefore: Current Liabilities = Rs. 36,000 Current Assets = 3.5×36,0003.5 \times 36,000 = Rs. 1,26,000

Exercise: Questions for Practice | Q: 3 | (Page 43)
For More Understanding

Explanation

This numerical problem appears in the 'Do it Yourself' section of the textbook. It tests the relationship between Current Ratio and Working Capital. The Current Ratio establishes the proportion between Current Assets and Current Liabilities. Working Capital is defined as the excess of Current Assets over Current Liabilities. By expressing Current Assets in terms of Current Liabilities using the ratio, one can solve the linear equation derived from the Working Capital figure.

Solution Steps

  1. Step 1: Assume Current Liabilities as x and express Current Assets as 3.5x based on the given ratio.

  2. Step 2: Apply the Working Capital formula: Working Capital = Current Assets - Current Liabilities.

  3. Step 3: Solve the equation 90,000 = 3.5x - x to find the value of x (Current Liabilities).

  4. Step 4: Calculate Current Assets by multiplying the value of Current Liabilities by 3.5.

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