Acid test ratio $=$
Curreı
(Hall et al., 2015
BR The Sino-British College, USST
上海理工大学中英国际学院
NCUK-IFYBSOO4
$\mathrm{M}-48$
\begin{tabular}{|l|l|l|l|} \hline 1819V1E-QA7 & MCQ [1] & SLO & IFYBS004-M4(23-24) \ \hline \end{tabular}
The following information has been extracted from a company's statement of financial position. The information is incomplete
\begin{tabular}{|l|l|}
\hline Inventories & 100 \
\hline Trade receivables & 70 \
\hline Cash & 40 \
\hline Trade payables & 90 \
\hline Non-current liabilities & 30 \
\hline
\end{tabular}

The value of the acid test ratio is:
\begin{tabular}{|l|l|l|l|}
\hline A & $1.75: 1$ & B & $1.2: 1$ \
\hline C & $0.91: 1$ & D & $2.3: 1$ \
\hline
\end{tabular}
SBC)
The Sino-British College, USST
上海理工大学中英国标学院
NCUK-IFYBS004
$\mathrm{M}-49$
(7) Acid test ratio
- If a business has an acid test ratio of less than 1:1 it means

Question

Acid test ratio $=$
Curreı
(Hall et al., 2015
BR The Sino-British College, USST
上海理工大学中英国际学院
NCUK-IFYBSOO4
$\mathrm{M}-48$
\begin{tabular}{|l|l|l|l|} \hline 1819V1E-QA7 & MCQ [1] & SLO & IFYBS004-M4(23-24) \ \hline \end{tabular}
The following information has been extracted from a company's statement of financial position. The information is incomplete
\begin{tabular}{|l|l|}
\hline Inventories & 100 \
\hline Trade receivables & 70 \
\hline Cash & 40 \
\hline Trade payables & 90 \
\hline Non-current liabilities & 30 \
\hline
\end{tabular}

The value of the acid test ratio is:
\begin{tabular}{|l|l|l|l|}
\hline A & $1.75: 1$ & B & $1.2: 1$ \
\hline C & $0.91: 1$ & D & $2.3: 1$ \
\hline
\end{tabular}
SBC)
The Sino-British College, USST
上海理工大学中英国标学院
NCUK-IFYBS004
$\mathrm{M}-49$
(7) Acid test ratio
- If a business has an acid test ratio of less than 1:1 it means

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ The acid test ratio is calculated using the formula: $ ext{Acid Test Ratio} = \frac{ ext{Current Assets} - ext{Inventories}}{ ext{Current Liabilities}}$. ‖ ‖ step 2 ⋮ From the given data: Current Assets = Trade Receivables + Cash = $70 + 40 = 110$. ‖ ‖ step 3 ⋮ Inventories = $100$. ‖ ‖ step 4 ⋮ Current Liabilities = Trade Payables = $90$. ‖ ‖ step 5 ⋮ Substituting the values into the formula: $ ext{Acid Test Ratio} = \frac{110 - 100}{90} = \frac{10}{90} = \frac{1}{9} \approx 0.11$. ‖ ***C*** ∻Key Concept∻ ⚹Acid Test Ratio⚹ ∻Explanation∻ ⚹The acid test ratio measures a company's ability to pay off its current liabilities without relying on the sale of inventories.⚹◊What is the formula for calculating the acid test ratio?⍭ Generate me a similar question◊

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