Current ratio = Current assets / Current liabilities = 2: 1
Current Liabilities = Rs. 1,75,000
Payment of Rs. 30,000 to a Creditor will have two effects:
- Decrease in Cash by Rs. 30,000 and therefore Current Assets will decrease to Rs. 3,20,000.
- Decrease in Creditors by Rs. 30,000 and this will decrease Current Liabilities to Rs. 1,45,000.
Current ratio = Current assets / Current liabilities
= 3,20,000 / 1,45,000
= 2.21: 1