ACCA AA · Chapter 12 · Question 6 of 9
At the year end, Fettle Co has current assets of $2.1 million and current liabilities of $3.0 million. Its overdraft facility is due for renewal shortly after the year end. What is the current ratio?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) 0.70:1
Explanation
Current ratio = current assets / current liabilities = $2.1m / $3.0m = 0.70:1. Inverting the formula gives 1.43:1. A ratio below 1, combined with an overdraft awaiting renewal, is an indicator that the auditor should consider in assessing going concern under ISA 570.
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