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A company’s sales and cost of sales figures have remained unchanged for the last two years. The following information
has been noted:
Year ended 31 May 2015 31 May 2014
Inventory turnover period. 45 days 38 days
Payables payment period 40 days. 35 days
Receivables payment period 60 days. 68 days
Current ratio 1·1 1·3
Quick ratio 1·3. 1·4The following statements have been made about the company’s performance for the most recent year:
(i) Customers are taking longer to pay and this may have contributed to the decline in the company’s current ratio.
(ii) Inventory levels have increased and this may have contributed to the decline in the company’s quick ratio.
Which of the above statements is/are true?
A (i) only
B (ii) only
C Both (i) and (ii)
D Neither (i) nor (ii)ACCA Ans – Option D,
Reason because the inventory level has increased.Doubt, Thought I’m good with statement 1, i can’t understand why Statement 2 is incorrect. With inventory days increasing this means money is getting blocked in inventory therefore the cash balance has reduced and the quick ratio shall indeed fall
D
The second statement is wrong because the quick ratio excludes inventory.But Tutor what i have mentioned here. Isn’t it correct too? Can’t that be a possibility too?
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