ExpertMedium2 marksShort Answer
ACCA · Question 34 · Performance Measurement
Section A
SteelWorks Manufacturing has the following balances:
Inventory: $50,000
Receivables: $80,000
Cash: $20,000
Payables: $60,000
Short-term overdraft: $20,000
Calculate the Quick Ratio (Acid Test Ratio). Enter your answer as a decimal to two decimal places (e.g., 1.50).
Section A
SteelWorks Manufacturing has the following balances:
Inventory: $50,000
Receivables: $80,000
Cash: $20,000
Payables: $60,000
Short-term overdraft: $20,000
Calculate the Quick Ratio (Acid Test Ratio). Enter your answer as a decimal to two decimal places (e.g., 1.50).
How to approach this question
Quick Ratio = (Current Assets - Inventory) / Current Liabilities. Identify Current Assets (Receivables + Cash) and Current Liabilities (Payables + Overdraft).
Full Answer
Current Assets excluding inventory = Receivables ($80,000) + Cash ($20,000) = $100,000. Current Liabilities = Payables ($60,000) + Short-term overdraft ($20,000) = $80,000. Quick Ratio = $100,000 / $80,000 = 1.25.
Common mistakes
Including inventory (calculating Current Ratio = 1.875) or forgetting to include the overdraft in liabilities.
Practice the full ACCA MA — Management Accounting Practice Exam 3
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