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If cash in the bank is used to pay some of the payable, what will be the effect on the current ratio and quick ratio.
The answer said Increase and decrease respectively.
I think it’s a decrease/decrease respectively.
Since cash is going out(reduction in Current Assets) and at the same time payables reduces with the same amount (reduction in current liabilities). And the same logic applies to the quick ratio too. Am I wrong sir?
Also, where do we classify preference shares in computing gearing? Debt or equity?
And should we do the same thing in f9 too?
First question:
If you are certain that you have read the question correctly, then yes – they will both decrease.
Second question:
Preference shares are treated as debt (because the fixed dividend is like paying fixed interest). This is for both F5 and F9.
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