ExpertEasy2 marksShort Answer
ACCA · Question 35 · Performance Measurement
A heavy engineering firm has the following balances:
Current Assets: $500,000 (including Inventory of $200,000)
Current Liabilities: $250,000
Calculate the Quick Ratio (Acid Test Ratio). (Enter to one decimal place)
A heavy engineering firm has the following balances:
Current Assets: $500,000 (including Inventory of $200,000)
Current Liabilities: $250,000
Calculate the Quick Ratio (Acid Test Ratio). (Enter to one decimal place)
How to approach this question
1. Calculate liquid assets by subtracting inventory from current assets. 2. Divide liquid assets by current liabilities.
Full Answer
Liquid Assets = Current Assets - Inventory = $500,000 - $200,000 = $300,000.
Quick Ratio = Liquid Assets / Current Liabilities = $300,000 / $250,000 = 1.2.
Common mistakes
Calculating the Current Ratio instead ($500k / $250k = 2.0).
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