Question on: JAMB Accounting - 2018
| N | N |
| Capital 39,000 | Land 20,000 |
| Long Term Loan 15, 000 | Building 30,000 |
| Creditors 9,000 | Stock 40,000 |
| Debtors 6,000 | |
| Accrued wages 5,000 | Cash 8, 000 |
| 68,000 | 68,000 |
Use the information above to answer the question
What is the acid test ratio in the company?
A
1:1
B
2:3
C
1:2
D
3:2
Ask EduPadi AI for a detailed answer
Correct Option: A
The acid test ratio (also known as the quick ratio) is a measure of a company's ability to meet its short-term obligations with its most liquid assets. It is calculated as:
(Current Assets - Inventory) / Current Liabilities
First, identify the current assets and current liabilities from the provided information:
* **Current Assets:** Debtors (6,000) + Cash (8,000) + Stock (40,000) = 54,000
* **Current Liabilities:** Creditors (9,000) + Accrued wages (5,000) = 14,000
* **Inventory:** 40,000
Now, calculate the acid test ratio:
(5
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