Based on the balances in its unaudited year-end financial statements, Aquaflow plc calculated that it had a current ratio of 4.0 and an acid test ratio of 2.0. However, prior to finalising these financial statements the company reduced the recorded value of its inventory because some of its products were not selling as well as hoped. What effect does this revaluation have on the current and acid test ratios previously calculated?

Select one:

A decrease in its current ratio and a decrease in its acid test ratio

A decrease in its current ratio and no effect on its acid test ratio

No effect on its current ratio, but a decrease in its acid test ratio

An increase in its current ratio and an increase in its acid test ratio