Accounting Multiple Choice Question – 6 October 2025

Alex Ltd’s Liquid Capital ratio (sometimes known as the Acid Test or Quick ratio) has fallen from 2:1 to 1.5:1.

Which one of the following might help to explain this decline?

Select ONE answer:

1. The provision for doubtful debts (or allowance for receivables) has been reduced
2. Credit control of receivables has been poor
3. The entity has purchased a property for cash
4. Inventory or stock levels have fallen

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 3

1. Not correct
2. Not correct
3. Correct => If the entity has purchased a property for cash, this would reduce current assets without any corresponding reduction in current liabilities (i.e. Dr Non-Current Assets Cr Cash)
4. Not correct

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