JAMB Accounts Principles of Accounts 2018 Paper

Question : 3

Total: 88

Use the information above to answer the question

: The acid test ratio in the company is___________

Solution:

Concept:

Acid test ratio measures short-term liquidity after removing stock from current assets.

It is also called the quick ratio.

Explanation:

Formula:

\text{Acid Test Ratio} = \frac{\text{Current Assets} - \text{Stock}}{\text{Current Liabilities}}

Current assets are Stock, Debtors and Cash:

40{,}000 + 6{,}000 + 8{,}000 = 54{,}000

Remove Stock from current assets:

54{,}000 - 40{,}000 = 14{,}000

Current liabilities are Creditors and Accrued wages:

9{,}000 + 5{,}000 = 14{,}000

Acid test ratio

= \frac{14{,}000}{14{,}000} = 1 : 1

Answer:

A. 1:1

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