Accountancy MCQs
Topic Notes: Accountancy
General Description
Plato
- Biography: Ancient Greek philosopher (427–347 BCE), student of Socrates and teacher of Aristotle, founder of the Academy in Athens.
- Important Ideas:
- Theory of Forms
- Philosopher-King
- Ideal State
1
Which financial ratio measures a firm's ability to settle its current liabilities in the shortest possible time?
Answer:
Quick Ratio
The Quick Ratio, also known as the Acid-Test Ratio, is a stringent measure of liquidity. It excludes inventory and prepaid expenses from current assets, focusing only on the most liquid assets (cash, marketable securities, and receivables) to determine if a company can meet its immediate short-term obligations.
2
What term describes current assets that are either already in cash form or can be converted into cash with minimal delay?
Answer:
Liquid or quick assets
Liquid or quick assets are those assets that can be converted into cash almost immediately without significant loss in value. These typically include cash on hand, bank balances, and marketable securities, excluding inventory which may take longer to sell.
3
Which of the following items are classified as quick assets?
Answer:
Only A and B
Quick assets are current assets that can be converted into cash within a very short period, typically 90 days or less. Cash and accounts receivable are highly liquid, whereas inventories are generally excluded because they require time to be sold before they become cash.
4
Which financial ratio is primarily used to evaluate the short-term liquidity of a business entity?
Answer:
Acid test ratio
The acid-test ratio, also known as the quick ratio, measures a company's ability to meet its short-term obligations using its most liquid assets. It excludes inventory from current assets, providing a more stringent assessment of liquidity than the standard current ratio.
5
What is the standard formula for calculating Liquid or Quick Assets?
Answer:
Current assets – (Stock + Work in progress)
Liquid or quick assets are defined as current assets that can be converted into cash quickly without significant loss in value. Since inventory (stock) and work-in-progress are not immediately liquid, they are subtracted from total current assets to determine the quick asset position of a firm.