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JAMB Principles of Accounts 2007 Question 12

Question 12

Interpretation of Accounts

An accounting ratio that considers only quick assets to determine the short-term safety margin of a firm is the

  1. A.fixed assets ratio
  2. B.capital gearing ratio
  3. C.current assets ratio
  4. D.acid test ratio.
Show the answer and explanation

Answer: D (acid test ratio.)

Explanation

The acid test (quick) ratio compares quick assets (current assets less stock) with current liabilities.