Use the information below to answer this question.
\(\begin{array}{c|c}
\text{Stock} & 11,250 \\
\hline
\text{Debtors} & 18,750 \\
\hline
\text{Creditors} & 3,750 \\
\hline
\text{Bank} & 4,000 \\
\hline
\text{Net profit} & 7,500 \\
\hline
\text{Net} & 60,000 \\
\end{array}\)
Calculate the acid test ratio
A. 5 : 1
B. 6 : 1
C. 6 : 1 : 1
D. 4 : 1
Correct Answer: C
Explanation
given that acid test ratio is:
\(\frac {\text{Current assets – stock}}{\text{Current liabilities}}\)
Current assets:\(\frac {\text{stock + Debtors + bank – stock}}{\text{Current liabilities}}\)
\(\frac{11250 + 18750 + 4000 – 11250}{3750}\)
= 34000 – 11250 = 22750 = 6:1:1
