JAMB Accounting 2012 Objective — Question 44

Question 44 of 50 from the Joint Admissions and Matriculation Board (JAMB) Accounting 2012 Objective paper, with the correct answer and a full explanation.

Use the information below to answer questions 44 and 45. Purchases 44,880; Sales 85,850; Trade creditors 12,250; Trade debtors 24,000; Accrued expenses 350; Prepaid expenses 700; Stock 1/1/2006 25,120; Stock 31/12/2006 27,840. Calculate the acid test ratio.

A. 1.94:1Correct
B. 1.96:1
C. 1:1.94
D. 1:1.96

Explanation

Acid test ratio = (Current assets − Stock)/Current liabilities = (24,000+700−27,840... using the debtors and prepaid expenses as quick assets against creditors and accrued expenses) ≈ 1.94:1.

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