Actions Affecting Current Ratio Formula

Steps:

• Recall current ratio = current assets / current liabilities; increase requires raising assets or lowering liabilities.
• Evaluate each option's impact on balance sheet items.
• Identify cash inflows or outflows tied to current assets/liabilities.
• Select option that boosts numerator without affecting denominator.

Why B is correct:

• Rights issue raises cash by selling new shares to existing shareholders, increasing current assets per the accounting equation (assets = liabilities + equity).

Why the others are wrong:

• A: Bonus shares transfer reserves to share capital, no cash change, so no effect on current assets.
• C: Higher provision reduces net receivables (current asset), lowering the ratio.
• D: Lower depreciation rate increases non-current asset values via retained earnings, but does not impact current assets/liabilities.

Final answer: B