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SSC Financial and Cost Accounting P-1 QUESTION #6057
Question 1

A company currently has a current ratio greater than 1. If it makes a credit purchase of inventory, what will happen to the current ratio?

  • Current ratio will increase
  • Current ratio will decrease but remain above 1
  • Current ratio will decrease✔️
  • Current ratio will remain unchanged
Correct Answer Explanation

A credit purchase of inventory increases both current assets (inventory goes up) and current liabilities (accounts payable goes up) by the same amount. When the ratio is $> 1$, adding equal amounts to both numerator and denominator brings the ratio closer to 1 — i.e., it decreases. For example, if CA $= 200$ and CL $= 100$ (ratio $= 2$), adding 50 to each gives $250/150 \approx 1.67$ — lower but still above 1. So the ratio decreases but stays above 1.