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A company has following balances in thousands.
Prepayment received for services- 120, cash deposit with maturity on demand – 30, cash in hand – 25, short-term prepayment issued for holographic products – 20, outstanding bank loan with maturity in 3 years – 80. What is the quick ratio if company policy is to keep inventory 3 times lower than prepayment received?The correct answer given is .625. Can anyone help me find how we arrived a t this figure? Thank you
The current assets are the cash deposit of 30, the cash on demand of 25, and the short term prepayment of 20.
The current liability is the prepayment received for services of 120.So the quick (or acid-test) ratio is 75/120 = 0.625
(Inventory is of course irrelevant when calculating the quick ratio)
I suggest that you watch my free lectures on working capital. The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
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