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A company has current assets of $1.8m , including inventory of $0.5m, and current liabilities of $1.0m. what would be the effect on the value of the current and acid test ratios if the company bought more raw material inventory on the three month’s credit?
Current ratio Acid test
A increase increase
B decrease increase
C increase decrease
D decrease decreasePlease do not simply set test questions and expect an answer.
You must have an answer in the same book in which you found the question, and so you should ask about what it is in the answer that you are not clear about.Both ratios will decrease. They was to check is to calculate both ratios on the current figures. Then assume more inventory is bought on credit (and number will do – say 0.1M) and see what happens to the two ratios.
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