Analysis and interpretation

The current ratio will be calculated as follows:

• Total assets : Total liabilities

• Total assets - inventory : Total liabilities

• Current assets : Current liabilities

• Current liabilities - inventory : Current assets

It is not wise for a business to have too much stock as the stock may become obsolete.

• True
• False

The acid-test ratio is calculated as follows:

• Total assets : Total liabilities

• Total assets - inventory : Total liabilities

• Current assets : Current liabilities

• Current assets - inventories : Current liabilities

The business should be satisfied if the stock turnover rate for the current year is lower than the previous year.

• True
• False

The return on equity will be compared to ...

• The return on net profit

• The return on alternative investments

• The interest rates on long term loans

• The return on drawings

The average inventory refers to the balance of inventory at the beginning of the year + the balance of inventory at the end of the year.

• True
• False

The average partner's equity will be calculated as follows: The balance of each partner's capital and current accounts at the beginning of the year + the balance of each partners capital and current account at the end of the year . The total will be multiplied by a half.

• True
• False

When the partners equity is calculated and the private account of a partner reflects a debit balance, this will be deducted from the other balances and not added.

• False

• True

• Somewhat true

• Not sure

The following formula is used to calculate the inventory turnover rate:

Cost of sales / Average inventory x 365

• True
• False

A partnership with a debt equity ratio of 1:1 is lowly geared.

• True
• False