The directors of Brasenose Forceps Limited have taken steps during the 20X7 financial year to improve the company's quick and current ratios.Their target for the quick ratio was 0.80 and for the current ratio it was 1.75. Extracts from the company's statement of financial position at the 20X7 year end were as follows:
Which one of the following statements is correct?

Question

The directors of Brasenose Forceps Limited have taken steps during the 20X7 financial year to improve the company's quick and current ratios.Their target for the quick ratio was 0.80 and for the current ratio it was 1.75. Extracts from the company's statement of financial position at the 20X7 year end were as follows:
 Which one of the following statements is correct?

Quizplus · Accepted Answer

To compare the actual ratios with the target ratios, we need to calculate the actual ratios first.

Quick ratio = (Current assets - Inventory) / Current liabilities
= (£420,000 - £85,000) / £175,000
= 1.71

Current ratio = Current assets / Current liabilities
= £420,000 / £240,000
= 1.75

So, the actual quick ratio is worse than the target of 0.80, but the actual current ratio is better than the target of 1.75. This makes option B the correct answer.

The Directors of Brasenose Forceps Limited Have Taken Steps During