Day: January 29, 2025

Accounting Multiple Choice Question – 29 January 2025

The home of multiple choice questions for all your KS3, KS4 and KS5 Business Studies, Economics and Accounting requirements.

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Alex plc is trying to decide on its optimal level of current assets.

The company’s management face a trade-off between?

Select ONE answer:

  1. Profitability and risk
  2. Inventory and receivables
  3. Equity and debt
  4. Short-term and long-term borrowing

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 1

  1. Correct == > All businesses face a trade-off between being profitable and being liquid. Less liquidity may yield greater profitability, but less liquidity equals greater risk. As both inventory and receivables (2) are current assets the trade-off between these does not affect the overall level of the value of current assets. The equity and debt (3) trade-off is concerned with long-term capital structure rather than current assets. The short-term versus long-term borrowing trade-off (4) is a financing decision unrelated to current assets.
  2. Not correct
  3. Not correct
  4. Not correct

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