AuthorTopic: Financial Stmt question - can help please?
Agoothi
@2014-04-17 23:21:02
Using cash to reduce account payable will _______, what will happen to current ratio and quick ratio?

a) Increase both the current ratio and quick ratio
b) Reduce both the current ratio and quick ratio
c) Increase both the current ratio but have no effect on the quick ratio
d) Not have any effect on current ratio or quick ratio
banik
@2014-04-18 14:36:40
question is incomplete

lets take CA 200,000 and CL 150,000
CR=200,000/150,000=1.33

cash paid 20,000
then CA is 180,000 and CL is 130,000
CR= 1.38

here CR increases

NOW LETS TAKE ANOTHER SITUATION
CA=100,000 and CL= 120,000
CR= 0.833

cash paid for AP 20000
CA=80,000 and CL=100,000
CR= 0.80

here CR decreases. the same goes for Quick ratio. the question does not specify whether CA > or < CL so it cannot be determined.
Sandar
@2014-04-18 19:42:27
its simple.. CR = current assets/ current liabilities and Quick ration, the same.. cash reduced, current assets reduced --> CR reduced
Agoothi
@2014-05-01 17:32:42
Hi Banik

Thanks for your time to explain! Good luck in your exam too!

CFA Discussion Topic: Financial Stmt question - can help please?

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