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ACCA Applied Knowledge · Financial Accounting · Ratios

At the year end, Delta had current assets of $240,000 including inventory of $90,000, and current liabilities of $120,000. Just before the year end, Delta repaid a $60,000 trade payable using cash, and the repayment is already reflected in these figures. Delta's management claims the year-end current ratio is adequate. Which statement is correct about the quick (acid test) ratio shown by these figures?

The quick ratio is 1.25. It is current assets less inventory, which is 240,000 minus 90,000 giving 150,000, divided by current liabilities of 120,000. The 2.00 figure is the current ratio, which wrongly includes inventory.

  1. A1.00, calculated as 120,000 / 120,000
  2. B1.25, calculated as 150,000 / 120,000Correct
  3. C2.00, calculated as 240,000 / 120,000
  4. D0.75, calculated as 90,000 / 120,000

Explanation

Quick ratio = (current assets - inventory) / current liabilities = (240,000 - 90,000) / 120,000 = 1.25. Option 2.00 is the current ratio, which fails to exclude inventory. Repayment is already reflected so no further adjustment is needed.

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