The following balances were extracted from the books of Adama Ltd on 31st August 2007
| # | |
|
Sales |
200000 |
|
Drawings |
10000 |
|
Land and building |
70000 |
|
Furniture |
10000 |
|
Debtors |
50000 |
|
Creditors |
35000 |
|
Capital |
85000 |
|
Bank |
10000 |
|
General expenses |
10000 |
|
Stock ( 31-08-2007) |
10000 |
|
Purchases |
140000 |
|
Stock (1-09- 2006) |
20000 |
The current ratio is
- 3:1
-
2:1
- 1:1
- 1.2:1
The correct answer is: B
Explanation
Calculate Total Current Assets:
Total Current Assets = Debtors + Stock + Bank
Total Current Assets = #50,000+ #10,000 + #10,000
Total Current Assets = #70,000
Calculate the Current Ratio (assuming #35,000 current liabilities): Current Ratio = Total Current Assets / Current Liabilities
Current Ratio = #70,000/ #35,000
Current Ratio = 2/1