which of the following statements is not true
The following statement is not true, | ||||||||||
The Current ratio is usually lower than the acid test ratio. | ||||||||||
The other four statements are true. | ||||||||||
Statement 1 - It is true | ||||||||||
The formula to calculate the average collection period = 365 days / Accounts receivable turnover ratio | ||||||||||
Therefore , Lower the accounts receivable turnover ratio result into higher average collection period. | ||||||||||
Statement 2 - It is true | ||||||||||
5 year loan taken form part of Long term debt and Machinery purchased formed part of Fixed assets. | ||||||||||
Hence , loan taken to purchase machinery will not impact current ratio which is calculated as current assets/current liabilities. | ||||||||||
Statement 3 - It is true | ||||||||||
Both short term markatable securities and cash form part of quick current assets.Hence decrease in Cash and increase in | ||||||||||
markatable securities to that extent will affect acid test ratio which is calculated as Quick current assets / current liabilities. | ||||||||||
Statement 4 - It is true | ||||||||||
Selling old machinery for cash decrease the fixed assets and increases the cash which is part of quick current assets | ||||||||||
and hence it result into increase in acid test ratio. | ||||||||||
Statement 5 - It is not true | ||||||||||
Current ratio is calculated considering entire current assets and dividing it by total current liabilities whereas acid test ratio | ||||||||||
is calculated by taking into account only the liquid current assets (excluding inventory and prepaid expenses) and dividing it | ||||||||||
by total current liabilities.Numerator in case of current ratio is on higher side and whereas in case of acid test ratio it is lower side. | ||||||||||
Hence , usually acid test ratio is lower than current ratio. |
30 4 pts Question 27 Wic f the alowing statements's not true? lover scuants recokase bunover rati...