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Hi john, I got few questions.
If cash in the bank is used to pay some of the payables what will be the effect on current ratio and quick ratio test?(i will appreciate with example).in relevant costing ,is the cost incurred in getting the information on contract relevant? (reference: question 244 kaplan)
equally, for the inventory of materials(material is now expensive in the market) that are in regular use but has the choice of disposal or use in another contract, can we consider the disposal forgone or the cost of getting new or the higher of the two so as to be used in another contract? (reference: question 287 kaplan).
thanks.For questions like your first one, always make up a few figures and check what happens.
For example, suppose the current assets (including cash) are 5,000 and the current liabilities (including payables) are 2,000. The current ratio is 2.5
Suppose the take 1,000 of cash to pay some payables. So both the current assets and current liabilities fall by 1,000. Check for yourself what happens to the current ratio 🙂
(The quick ratio moves the same way because it is just ignoring inventory)I do not have the Kaplan books (only the BPP Revision Kit).
However, presumably the cost incurred in getting the information will already have spent.. If so then it is a sunk cost and is not relevant.If materials are in regular use then they will not be disposed of if they do not do the contract. Doing the contract will mean that the materials need to be replaced and therefore the relevant cost is the current purchase price.
Thanks, sir. i actually did the same for current ratio and quick ratio but the answer says the quick ratio will decrease. i then thought to myself that maybe the cash paid will somehow affect the inventory. could be through purchase account. or maybe the book is wrong. confused.
on another note, i did my first practice test online this morning. i am not so much familiar with the practice platform for skilled level papers as this will be my first exam. could you please help me on how the marking goes? do i need to do self marking or i will wait for marking to be done?
thanks, sir.
Assuming that you copied the question correctly, then it does seem that there is a mistake in the book.
As far as the marking is concerned, for questions in Section A and Section B, you get 2 marks if the answer is completely correct and 0 if the answer is not completely correct.
For Section C questions, best it to look at a few of the past exam answers available on the ACCA website. On the very last page you will find the examiners marking guide for each of the questions showing how the marks are to be given by the markers. For calculations, you will see that each bit is marked separately, and you do not lose marks twice – what that means is if you make a mistake on one part of a question then you lose those marks, but you can still get full marks for all the calculations that follow if you have carried on doing the correct things on your figures.
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