Section A

GreenEnergy Ltd has a quick ratio (acid test) of 0.8:1 and a current ratio of 1.5:1. The company uses cash to pay off $50,000 of its trade payables. Will the quick ratio increase, decrease, or remain unchanged?

When the quick ratio is less than 1:1, paying off a current liability with cash reduces both the numerator (cash) and the denominator (current liabilities) by the same absolute amount. Mathematically, this causes the ratio to decrease. For example, if quick assets are 80 and liabilities are 100 (ratio 0.8), paying 50 makes assets 30 and liabilities 50 (ratio 0.6).