(begin{array}{c|c}
N & N \
hline
text{Capital 8000} & text{Plant and machinery5000}\
hline
text{Net profit 4000} & text{Motor Van 4500} \
hline
text{Drawings 200} & text{Stock 2000} \
hline
text{Creditors 2000} & text{Debtors 1000} \
hline
text{Accurals 300} & text{Banks 100} \
hline
& text{Cash 600} \
hline
14100 & 14100 \
end{array})
What is the current ratio?
-
A.
1 : 4 -
B.
5 : 1 -
C.
3 : 1 -
D.
2 : 1
Correct Answer: Option A
Explanation
Using the Balance Sheet, the current ratio is calculated by dividing current assets by current liabilities:
Current assets = stock + debtors + banks + cash
current liabilities = drawings + creditors + accruals
current assets = 2000 + 1000 + 100 + 600 =3700
current liabilities = 2000 + 200 + 300 = 2500
3700 ÷ 2500 = 1.4