JAMB Accounts Principles of Accounts 2015 Paper

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Question : 5

Total: 69

Use the information below to answer this question.

Stock	11,250
Debtors	18,750
Creditors	3,750
Bank	4,000
Net profit	7,500
Net	60,000

Calculate the acid test ratio

5 : 1
6 : 1
6 : 1 : 1
4 : 1

Solution:

Concept:

Acid test ratio measures liquidity by excluding stock from current assets.

Explanation:

\text{Acid test ratio} = \frac{\text{Current assets} - \text{Stock}}{\text{Current liabilities}}

Current assets = Stock + Debtors + Bank

= 11,250 + 18,750 + 4,000 = 34,000

Subtract stock:

= 34,000 - 11,250 = 22,750

Current liabilities = Creditors =

3,750

Therefore:

\frac{22,750}{3,750} = 6.07 \approx 6

Acid test ratio =

6 : 1

Answer:

B.

6 : 1

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