14 :- A firm had Current Assets of Rs 5,00,000. It paid Current Liabilities of Rs 1,00,000 and the Current Ratio became 2:1. Determine Current Liabilities and Working Capital before and after the payment was made.
Solution :-
Calculation of Current Assets and Current Liabilities before payment
Current Assets = Rs 5,00,000
Current Ratio = Current Assets/Current Liabilities
As per the question,
2 = 5,00,000 – 1,00,000/Current Liabilities – 1,00,000
2 (Current Liabilities – 1,00,000) = 4,00,000
2 C.L – 2,00,000 = 4,00,000
2 C.L = 6,00,000
Current Liabilities = 6,00,000/2
Current Liabilities = Rs 3,00,000
Calculation of Working Capital Before Payment
Current Assets before Payment = Rs 5,00,000
Current Liabilities before Payment = Rs 3,00,000
Working capital = Current Assets – Current Liabilities
= 5,00,000 – 3,00,000
= Rs 2,00,000
Calculation of Working Capital after Payment
Current Assets after Payment = 5,00,000 – 1,00,000 = Rs 4,00,000
Current Liabilities after Payment = 3,00,000 – 1,00,000 = Rs 2,00,000
Working capital = Current Assets – Current Liabilities
= 4,00,000 – 2,00,000
= Rs 2,00,000