Question 6
Interpretation of AccountsUse the information below to answer questions 5 and 6.
Udoh Trading Company Balance Sheet as at 31st December, 1992 (shown in the figure).
The acid test ratio in the company is
- A.1:1
- B.2:3
- C.1:2
- D.3:2
Show the answer and explanation
Answer: A (1:1)
Explanation
Acid test = (current assets − stock) ÷ current liabilities = (6,000 + 8,000) ÷ 14,000 = 1:1.