JAMB Accounts Principles of Accounts 2012 Paper

Concept:The acid test ratio shows whether a business can pay its short-term debts using its most liquid current assets, excluding stock.Explanation:First, find the current assets.Current assets = Closing stock + Trade debtors + Prepaid expenses.Current assets = $\#27,840 + \#24,000 + \#700 = \#52,540$.Next, find the current liabilities.Current liabilities = Trade creditors + Accrued expenses.Current liabilities = $\#12,250 + \#350 = \#12,600$.Now, remove the closing stock from current assets to get quick assets.Quick assets = $\#52,540 - \#27,840 = \#24,700$.Apply the acid test ratio formula.Acid test ratio = $\dfrac{\text{Quick assets}}{\text{Current liabilities}}$.Acid test ratio = $\dfrac{\#24,700}{\#12,600} = 1.96:1$.Purchases, Sales, and Opening stock are not needed for this calculation.Answer:The acid test ratio is $1.96:1$. Therefore, the correct answer is B.