Rita is a trader. She provided the following information on 31 July 202:
Rita is a trader. She provided the following information on 31 July 20–2:
$
Inventory ........................................................... 3,140
Cash at bank ..................................................... 2,650
Trade payables .................................................. 3,670
Trade receivables .............................................. 2,960
Loan repayable 30 September 20–2 .................. 2,500
a. State the formula for the calculation of the liquid (acid test) ratio.
b. Calculate the liquid (acid test) ratio.
c. Comment on your answer to b.
d. State why the liquid (acid test) ratio is a more reliable indicator of liquidity than the current ratio.
e. Complete the table by stating the effect of each of the following on Rita’s current ratio and liquid (acid test) ratio. The first one has been completed as an example.
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Authors: Michael Büchling
1st Edition
1485131618, 9781485131618
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