ExpertEasy1 markMultiple Choice
ACCA · Question 58 · Interpretation of financial statements
Section B - Case 2: Single Entity Accounts & Ratio Analysis
*Scenario: Horizon Wind Farms Ltd has prepared draft financial statements for the year ended 31 December 20X8. The draft net profit is $850,000. Draft Revenue is $4,000,000 and Cost of Sales is $2,200,000. The following adjustments have not yet been processed:
- Depreciation on new turbines of $50,000 was omitted.
- An annual insurance premium of $12,000 paid on 1 July 20X8 was expensed in full.
- Closing inventory was overvalued by $30,000.
- An irrecoverable debt of $15,000 needs to be written off.
Equity comprises Share capital $1,000,000 and Retained earnings $2,000,000. There is a long-term loan of $1,500,000.*
If the adjusted Current Assets are $761,000 and the adjusted Current Liabilities are $380,500, what is the Current Ratio?
Section B - Case 2: Single Entity Accounts & Ratio Analysis
*Scenario: Horizon Wind Farms Ltd has prepared draft financial statements for the year ended 31 December 20X8. The draft net profit is $850,000. Draft Revenue is $4,000,000 and Cost of Sales is $2,200,000. The following adjustments have not yet been processed:
- Depreciation on new turbines of $50,000 was omitted.
- An annual insurance premium of $12,000 paid on 1 July 20X8 was expensed in full.
- Closing inventory was overvalued by $30,000.
- An irrecoverable debt of $15,000 needs to be written off.
Equity comprises Share capital $1,000,000 and Retained earnings $2,000,000. There is a long-term loan of $1,500,000.*
If the adjusted Current Assets are $761,000 and the adjusted Current Liabilities are $380,500, what is the Current Ratio?
Answer options:
A.
0.5 : 1
B.
2.0 : 1
C.
1.5 : 1
D.
2.5 : 1
How to approach this question
Current Ratio = Current Assets / Current Liabilities.
Full Answer
B.2.0 : 1✓ Correct
Current Ratio = Current Assets / Current Liabilities.
Ratio = $761,000 / $380,500 = 2.0. Expressed as 2.0 : 1.
Common mistakes
Inverting the formula (Liabilities / Assets).
Practice the full ACCA FA — Financial Accounting Practice Exam 1
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