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ACCA Applied Knowledge · Management Accounting · Performance measurement - application

Marlow Co has inventory of $60,000, receivables of $150,000, cash of $10,000 and payables of $110,000 (all current). What are its current ratio and quick ratio respectively?

The current ratio is 2.0 and the quick ratio is about 1.5. Current assets of $220,000 divided by payables of $110,000 gives 2.0. Excluding inventory of $60,000 leaves $160,000, which divided by $110,000 gives approximately 1.45, or 1.5.

  1. A2.0 and 1.5
  2. B2.0 and 1.6Correct
  3. C2.4 and 1.5
  4. D2.4 and 2.0

Explanation

Current assets = 60,000 + 150,000 + 10,000 = 220,000. Current ratio = 220,000/110,000 = 2.0. Quick ratio = (220,000 - 60,000)/110,000 = 160,000/110,000 = 1.45, which rounds to 1.5. Check: option with 1.5 matches only the first option.

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