Acid test ratio is a measure of short term assets to meet current liabilities.....Now my doubt is what and all will be considered as current liabilities here?
-- Edited by Shamus on Wednesday 24th of December 2014 12:58:01 PM
Current liabilities are all liabilities that may be called upon within the next twelve months such as the capital repayments on a loan due within that period.
If the business is not expected to last for more than 12 months then everything is a current liability so the going concern status of the entity is an important consideration before starting to extract figures.
For Acid test rather than current remember to exclude inventory from assets when doing the calculation.
Generally when you are asked about this you will have a balance sheet available and all of the figures that you need are easily grouped on there with the only additional step being to subtract the inventory from the current assets. (you may want to show the current and quick (acid test) ratio's the only difference between them being the inclusion of inventory in current assets).
kind regards,
Shaun.
p.s. Welcome to the forum. It's traditional to introduce yourself before asking a question but no worries. Also unnecessary links from new posters whilst not outright banned are frowned upon as too often they end up as SEO links. I've converted yours from a link as I do not feel that it was necessary for the question.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.