Leaving Cert Business Business Accounts & Ratio Analysis: The following information is ava

The following information is available from the final accounts of Daly Ltd on 31/12/2012: (Show your workings) Current Liabilities €140,000 Current Assets €280,000 (includes Closing Stock €70,000) Calculate: (a) Working Capital Ratio (b) Acid Test Ratio Answer: - Leaving Cert Business - Question 6 - 2013

Question 6

The following information is available from the final accounts of Daly Ltd on 31/12/2012: (Show your workings) Current Liabilities €140,000 Current Assets €280,000 (... show full transcript

Worked Solution & Example Answer:The following information is available from the final accounts of Daly Ltd on 31/12/2012: (Show your workings) Current Liabilities €140,000 Current Assets €280,000 (includes Closing Stock €70,000) Calculate: (a) Working Capital Ratio (b) Acid Test Ratio Answer: - Leaving Cert Business - Question 6 - 2013

Step 1

Working Capital Ratio

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Answer

To calculate the Working Capital Ratio, we use the formula:

ext{Working Capital Ratio} = rac{ ext{Current Assets}}{ ext{Current Liabilities}}

Substituting the given values:

ext{Working Capital Ratio} = rac{280,000}{140,000} = 2:1

This means that for every euro of liabilities, the company has €2 in assets.

Step 2

Acid Test Ratio

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Answer

To calculate the Acid Test Ratio, we first need to determine the Current Assets excluding Closing Stock:

ext{Current Assets (excluding Closing Stock)} = ext{Current Assets} - ext{Closing Stock} = 280,000 - 70,000 = 210,000

Now, we can use the formula:

ext{Acid Test Ratio} = rac{ ext{Current Assets (excluding Closing Stock)}}{ ext{Current Liabilities}}

Substituting the values:

ext{Acid Test Ratio} = rac{210,000}{140,000} = 1.5:1

This indicates that for every euro of liabilities, the company has €1.50 in liquid assets.

Working Capital Ratio

Acid Test Ratio

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