Rita is a trader. She provided the following information on 31 July 20–2:
                                                                                                $
Inventory ...........................................................            3,140
Cash at bank .....................................................            2,650
Trade payables ..................................................           3,670
Trade receivables ..............................................           2,960
Loan repayable 30 September 20–2  ..................       2,500

a. State the formula for the calculation of the liquid (acid test) ratio.
b. Calculate the liquid (acid test) ratio.
c. Comment on your answer to b.
d. State why the liquid (acid test) ratio is a more reliable indicator of liquidity than the current ratio.
e. Complete the table by stating the effect of each of the following on Rita’s current ratio and liquid (acid test) ratio. The first one has been completed as an example.

f. Name four interested parties, apart from Rita, who may wish to look at the financial statements of Rita. Give a reason in each case.

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Liquid (acid test) ratio Current ratio Sold old inventory at cost price to credit no effect increase customer Purchased a new machine paying by cheque Purchased inventory on credit Arranged for loan repayment date to be extended for two years