Hard-up Ltd has a current ratio of 0.75.Its current liabilities amount to $200 000.It borrows $75 000 from a finance company,repayable in five years.
-What is the immediate effect of the loan on current net profit?
A) There is a decrease of $75 000.
B) There is no immediate effect.
C) It cannot be determined from the information provided.
D) There is an increase of $75 000.

Question

Quizplus · Accepted Answer

Taking out a loan does not have an immediate effect on current net profit, as it is not revenue or expense. The current ratio and current liabilities are also unaffected by the loan, as they only measure the liquidity of the company's current assets and liabilities, not the long-term borrowing.

Hard-Up Ltd Has a Current Ratio of 0