crrent ratio.. HELP! (1 Viewer)

[preciouspearl89]

HEY!

If I wanted to figure out the Current ratio for this business… which things would fall under the current assets category and current liabilities? I’m really confused!!!


Accounts Payable 180 000
Accounts Receivable 80 000
Cash 20 000
Intangibles 50 000
Inventories 150 000
Mortgage 250 000
Overdraft 70 000
Plant and Equipment 300 000

Thanks in advanced!

 

[Jerruy]

CA/CL

Current refers to assets which can be converted to cash within the 12 months or liabilities which must be payed in 12 months.

CA: Accounts receivable, Cash, Inventories
CL: Accounts Payable, Overdraft

Therefore Current Ratio = (80000 + 20000 +150000) / (180000+70000)

250000/250000

therefore Current ratio= 1:1

There are enough short term assets to meat short term liabilities but the business should look to improve its ratio as 1:1 is not as ideal as 1.5:1.

 

[preciouspearl89]

I get it now!!

THANKS HEAPS.