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Explain the effect of payment of Rs. 10,000 to creditors on the current ratio if cash and creditors before payment are Rs. 1,50,000 and Rs. 75,000 respectively. 

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Current Ratio = Current Assets / Current liabilities

Before payment of Rs 10,000 to creditors 

= Cash / Creditors

= Rs 1,50,000 / Rs 75,000

= 2 : 1

After payment of Rs 10,000 to creditors

Current Ratio = Cash / Creditors

= (Rs 1,50,000 – Rs 10,000) / (Rs 75,000 – Rs 10,000) 

= 2.15 : 1

Hence, it can be observed that the current ratio has increased from 2 : 1 to 2.15 : 1

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