(a) Reduce (b) Reduce (c) Reduce (d) No change (e) Improve Repayment of long-term loans will reduce the total of current assets. However, the total of current liabilities will remain same. Therefore, the current ratio will reduce. Goods purchased on credit will increase the total of current assets and the total of current liabilities by the same amount. Therefore, the current ratio will reduce. Purchase of computer on credit which will be paid within 3 months will reduce the total of current assets. However, the total of current liabilities will remain same. Therefore, the current ratio will reduce. Purchase of land by issuing debentures will not affect the total of current assets or current liabilities Therefore, the current ratio will remain same. Sale of goods at a profit will increase the total of current assets. However, the total of current liabilities will remain same. Therefore, the current ratio will improve. Cash collected from debtors will not change the total of current assets because one current asset will be replaced by another. But the total of current liabilities will remain same. Therefore, there will be no change in the current ratio Cash paid to creditors will reduce the total of current assets and current liabilities by the same amount. Therefore, the current ratio will improve. Payment of outstanding liabilities will reduce the total of current assets and current liabilities. Therefore, the current ratio will improve ( No change (9) Improve (h) Improve e29 Reduce 0 Sale of goods at a loss will reduce the total of current assets but the total of current liabilities will remain same. Therefore, the current ratio will reduce. 0) Improve Issue of shares for cash will increase the total of current assets but the total of current liabilities will remain same. Therefore, the current ratio will improve. (k) No change Bills receivable drawn on debtors will not change the total of current assets because one current asset will be replaced by another. Therefore, it will not change the current ratio. (0) No change Bills receivable collected at maturity will not change the total of current assets because one current asset will be replaced by another. Therefore, the current ratio will not change. Illustration 13 The current ratio of a company is 2.5 : 1. State, giving reasons, which of the following would improve, reduce, or not change the ratio : (a) Declaration of a final dividend; (b) Issue of bonus shares out of profits; (c) Bills receivable endorsed in favour of a creditor; (d) Endorsed bill dishonoured; (e) Bills receivable dishonoured at maturity; (1) Bills payable accepted for 2 months; (g) Bills payable paid at maturity; (h) Fully convertible debentures (FCD) converted into equity shares; (1) Redemption of preference shares out of proceeds from fresh issue of shares