Assets Liabilities Accounts payable 25,000Cash 8, 000 Bank overdrafts 1,500Accounts receivables 10, 000 Long term loans 40,000Inventory 10, 000 Total liabilities 66,500Property, Plant and Equipment 100, 000 Shareholders Equity Share capital 35,000 Retained earnings 26, 500Total Assets 128, 000 Total Liabilities and SE 128, 000 You have the following information from the balance sheet of Company X as at 30 June 2018.Calculate liquid ratio. Question 4Select one:a.0.72b.1.12c.0.8d.1.06
Question
Assets Liabilities Accounts payable 25,000Cash 8, 000 Bank overdrafts 1,500Accounts receivables 10, 000 Long term loans 40,000Inventory 10, 000 Total liabilities 66,500Property, Plant and Equipment 100, 000 Shareholders Equity Share capital 35,000 Retained earnings 26, 500Total Assets 128, 000 Total Liabilities and SE 128, 000 You have the following information from the balance sheet of Company X as at 30 June 2018.Calculate liquid ratio. Question 4Select one:a.0.72b.1.12c.0.8d.1.06
Solution
The liquid ratio (also known as the quick ratio or acid-test ratio) is a type of liquidity ratio which measures a company's ability to pay off its current liabilities without relying on the sale of inventory. It is calculated as follows:
Liquid Ratio = (Current Assets - Inventory) / Current Liabilities
From the given balance sheet, we can see that:
Current Assets = Cash + Accounts Receivables = 8,000 + 10,000 = 18,000 Inventory = 10,000 Current Liabilities = Accounts Payable + Bank Overdrafts = 25,000 + 1,500 = 26,500
Substituting these values into the formula, we get:
Liquid Ratio = (18,000 - 10,000) / 26,500 = 8,000 / 26,500 = 0.30 (approximately)
However, none of the options provided (a. 0.72, b. 1.12, c. 0.8, d. 1.06) match this result. Please check the figures or the options again.
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