When current ratio is 2: 1 and if there is an equal increase in current assets and current liabilities would result in

The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year. It tells investors and analysts how a company can maximize the current assets on its balance sheet to satisfy its current debt and other payables.

When the current ratio is 2:1, an equal increase in current assets and current liabilities would decrease the current ratio.

Let us understand this through an example;

Current Assets = Rs.200000 and Current Liabilities = Rs.100000

Current ratio = Current assets/Current liabilities = 200000/100000 = 2:1

Now let us increase the current assets and current liabilities by Rs.100000 and calculate the new current ratio ;

Current ratio = 300000/200000 = 1.5:1.

Thus, option 3 is the correct answer.