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financial statements

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › financial statements

  • This topic has 2 replies, 2 voices, and was last updated 1 month ago by xyzc.
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    Posts
  • January 6, 2023 at 12:50 pm #675437
    xyzc
    Participant
    • Topics: 363
    • Replies: 132
    • ☆☆☆

    Why would the purchase of inventory on credit would not increase the current ratio and instead decrease it whilst if current assets are 4 and current liabilities are 5 then if inventory of 1 is added to both the current ratio increases

    January 8, 2023 at 7:44 pm #675520
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6493
    • ☆☆☆☆☆

    Hi,

    If we purchase the inventory on credit then inventory would increase and payables increase too by the same amount. If we use the 1 in the formula then we have the following:

    Before the current ratio is 4/5 = 0.8

    After the current ratio is 5/6 = 0.8333

    Giving an increase in the current ratio.

    Thanks

    January 28, 2023 at 8:52 am #677498
    xyzc
    Participant
    • Topics: 363
    • Replies: 132
    • ☆☆☆

    If current ratio increases then why in the bpp kit there is a question where there is inventory purchases on credit and an answer is given as current ratio decrease

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