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Dear John,
Below is a question from BPP Mixed Bank 7 (35.14)
Analysis of the statement of financial position of Charon for the year ended 20X9 reveals the following relationships:
Current Ratio. 2:1
Sales: Current assets 5:1
Acid test ratio 1.5:1If the sales for the year were $30 million, what is the value of inventory that will appear in the statement of financial position?
A) $1.5m ?
B) $10.5m
C) $3.0m
D) $4.5mPlease be kind enough to decipher this tough question 🙂
Much Appreciated!
The current assets are 30/5 = 6M.
For every 100 current liabilities, the current assets are 200 and the current assets less inventories are 150. So the inventory is 50 for every 200 of current assets.
Since the current assets are 6M, the inventory must be 50/200 x 6M = 1.5M.
Thank You!
I also have another small question;
Will a Dividend proposed/declared before they year end but has not been paid out yet appear on the SOFP as a Current Liability?
No. Proposed dividends are not recorded (yhey are only recorded when they are paid).
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