Use the information below to answer this question.
(begin{array}{c|c}
text{Stock} & 11,250 \
hline
text{Debtors} & 18,750 \
hline
text{Creditors} & 3,750 \
hline
text{Bank} & 4,000 \
hline
text{Net profit} & 7,500 \
hline
text{Net} & 60,000 \
end{array})
Calculate the acid test ratio
(begin{array}{c|c}
text{Stock} & 11,250 \
hline
text{Debtors} & 18,750 \
hline
text{Creditors} & 3,750 \
hline
text{Bank} & 4,000 \
hline
text{Net profit} & 7,500 \
hline
text{Net} & 60,000 \
end{array})
Calculate the acid test ratio
-
A.
5 : 1 -
B.
6 : 1 -
C.
6 : 1 : 1 -
D.
4 : 1
Correct Answer: Option C
Explanation
given that acid test ratio is:
(frac {text{Current assets – stock}}{text{Current liabilities}})
Current assets:(frac {text{stock + Debtors + bank – stock}}{text{Current liabilities}})
(frac{11250 + 18750 + 4000 – 11250}{3750})
= 34000 – 11250 = 22750 = 6:1:1