The current ratio is 2.5 : 1. Current assets are Rs. 50,000 and current liabilities are Rs. 20,000. How much must be the reduction in the current assets to bring the ratio to 2 : 1

Current Ratio = $\frac{\text{Current Assets}}{\text{Current Liabilities}}$

Verifying the given current ratio: $\frac{50,000}{20,000}$ = 2.5 : 1 ✓

Let the reduction in current assets be Rs. $x$

After reduction:

• New Current Assets = 50,000 - $x$
• Current Liabilities = 20,000 (remains unchanged)
• Desired Current Ratio = 2 : 1

Setting up the equation:

$\frac{50,000 - x}{20,000} = \frac{2}{1}$

Cross-multiplying:

50,000 - $x$ = 2 × 20,000

50,000 - $x$ = 40,000

$x$ = 50,000 - 40,000

$x$ = Rs. 10,000

Verification:

• New Current Assets = 50,000 - 10,000 = Rs. 40,000
• New Current Ratio = $\frac{40,000}{20,000}$ = 2 : 1 ✓

The reduction required is Rs. 10,000.