Day: December 12, 2021

The following information is given for Alex Ltd at 31 December 2020, who’s current ratio is calculated at 3.6: 1

• Average inventory – £12 000
• Accounts receivable – £4 000
• Accounts payable- £5 000

What was the value of inventory at 1 January 2020?

Select ONE answer:

1. £9,400
2. £10,000
3. £12,000
4. £14,000

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct ==>Current Ratio = CA / CL ==> (Inventory + AR) / AP ==> (X + £4k) / £5k. If average inventory is £12k, then total inventory is £24k. EOY Current ratio is therefore (£14k + £4k) / £5k = 3.6 : 1 ==> Thus opening inventory is £10k
3. Not correct
4. Not correct

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