Calculate Current ratio from the following information of a trading concern: Projected Annual Sales : ₹6,50,000, Percentage of Net Profit on sales: 25%, Average Credit period allowed to debtors: 10 Weeks, Average Credit

Working Notes: Cost = Sales - Net Profit = ₹6,50,000 - 25% on ₹6,50,000 = ₹4,87,500 Current Assets Amount in ₹ Debtors (10 weeks) at cost (₹4,87,500 x 10 weeks) / 52 Weeks 93,750 Stock (8 Weeks) (₹4,87,500 x 8 Weeks) / 52 Weeks 75,000 Total Current Assets 1,68,750 Current Liabilities Amount in ₹ Creditors (₹4,87,500 x 4 Weeks) / 52 Weeks 37,500 (i) Current Ratio (₹1,68,750 / ₹37,500) = 4.5: 1 Alternative Answer (Assuming the debtor at sales value) Working Notes: Cost = Sales - Net Profit = ₹6,50,000 - 25% on ₹6,50,000 = ₹4,87,500 Current Assets Amount in ₹ Debtors (10 weeks) at sales value (₹6,50,000 x 10 weeks) / 52 Weeks 1,25,000 Stock (8 Weeks) at cost (₹4,87,500 x 8 Weeks) / 52 Weeks 75,000 Total Current Assets 2,00,000 Current Liabilities Amount in ₹ Creditors (₹4,87,500 x 4 Weeks) / 52 Weeks 37,500 (i) Current Ratio (₹2,00,000 / ₹37,500) = 5.33:1