Use the following information to answer the given question
\(\begin{array}{c|c} & N \\ \hline Sales & 200,000 \\ \text{Opening Stock} & 20,000 \\ purchases & 140,000 \\ \text{Closing Stock} & 10,000 \\ Expenses & 10,000\\ Bank & 10,000 \\ Capital & 85,000 \\ Creditors & 35,000 \\ Debtors & 50,000 \\ \text{Fixtures and fittings, cost} & 10,000 \\ \text{Freehold land and building} & 70,000 \\ Drawings & 10,000\end{array}\)
Acid test ratio is
The correct answer is B. 1.7 : 1
The formula for the Acid Test Ratio is:
\(\text{Acid Test Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}}\)
In this case, the quick assets are the Bank and Debtors, and the current liabilities are the Creditors. So, we have:
\(\text{Acid Test Ratio} = \frac{\text{Bank} + \text{Debtors}}{\text{Creditors}} = \frac{10,000 + 50,000}{35,000} = 1.71\)
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