Which of the following would cause the current ratio to fall?
Answer and explanation
Correct answer: C. Paying £10,000 in cash for a new delivery van
- Step 1: Buying a non-current asset with cash reduces current assets while current liabilities are unchanged.
- Step 2: So the current ratio (current assets ÷ current liabilities) falls.
- Step 3: Collections and cash sales at cost leave current assets unchanged.
Answer
Paying £10,000 in cash for a new delivery van.
Why not the others: This changes one current asset into another, leaving total current assets the same. This increases current assets while current liabilities are unchanged, so the ratio rises. This replaces inventory with cash, leaving current assets unchanged.
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