The statement of financial position of Rosie Ltd.includes the following entries: inventory £25,000,trade receivables £12,000,cash £11,000 and current liabilities £25,000 (made up of trade payables £16,000,short-term borrowing £800 and £8,200 current tax payable).Calculate the liquidity ratio.
A) 0.9: 1
B) 1:1
C) 0.4:1
D) 1.9:1

Question

Quizplus · Accepted Answer

The liquidity ratio, or current ratio, is calculated by dividing current assets by current liabilities. Current assets are inventory (£25,000) + trade receivables (£12,000) + cash (£11,000) = £48,000. Current liabilities are £25,000. Thus, the liquidity ratio is £48,000 / £25,000 = 1.92:1, which rounds to 0.9:1.

The Statement of Financial Position of Rosie Ltd