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Question: Given inventory of $18,000, other current assets of $8,000 and current liabilities of $16,000, the acid test (quick ratio) will be:
Solution given: The quick ratio is calculated as current assets less inventory divided by current liabilities, or: $8,000/$16,000=0.5.
Question: Am i to assume that because inventory is a current asset that it was already deducted from the current asset hence, the reason you use $8000/$16,000?
Initially, this is how i calculated it: 8000-18000/16000 =0.625Inventory is a current asset, but the question says that ‘other current assets’ are $8,000.
So there is no assumption! ‘other current assets’ means the current assets except for inventory!
(With regard to what you did initially, how could total current assets (including inventory) be less that the value of inventory – it would make no sense at all, and the answer would be negative which is completely impossible!!!!)
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