correct answer is given for one of the ratios.

Award 3 – 4 marks if the correct answers are given along with the working out for both the current and acid  test ratios.

(b) Award 1 – 2 marks if the commentary is vague and/or incoherent. The answer might appear in an unexplained  list-like format.

Award 3 – 4 marks if there is a detailed commentary on the liquidity position of JKL Ltd. There is appropriate  use of business management terminology.

(c) Award 1 – 2 marks if only one reason is explained clearly or the answer lacks detail and/or depth. The answer  might appear in an unexplained list-like format.

Award 3 – 4 marks if there is a detailed explanation of what other information would be needed to judge the 

liquidity position of JKL Ltd. Relevant examples are used in the context of the case study and there is effective 

use of business management terminology throughout the answer

Y1 current ratio = 500 / 200 = 2.5 : 1

Y2 current ratio = 700 / 300 = 2.33 : 1 

Y1 acid test = 500 – 250 / 200 = 1.25 : 1

Y2 acid test = 700 – 350 / 300 = 1.17 : 1

b)

The liquidity position of JKL is favorable. JKL Ltd has sufficient operational capital for current liabilities in the second year, at the present rate, in both years. When the current ratio is too high, as with the 2.33 in the current assets, it is clear that resources are not being utilized effectively.

Similarly, JKL Ltd's liquidity dropped as a result of the acidity test, but we believe it is still favorable because it went above the acceptable minimum ratio of 1:1.

c) With the increasing of JKL's cash holdings, its liquidity will also increase responding to the former. The liquidity position of JKL could also be determined by the quality of management, as well as the quality of assets at hand. Finally, the rates of products sold could affect their liquidity position.

Year 2 Current Ratio = 700 / 300 = 2.33 

Year 1 Current Ratio = 500 / 200 = 2.5 

Year 2 Acid Test = (700 – 350) / 300 = 1.17 

Year 1 Acid Test = (500 – 250) / 200 = 1.25 

  

(b) Comment on the liquidity position of JKL Ltd. [4 marks] 

For the acid test, the liquidity ratio is greater than 1 would imply that the company is able to satisfy its current bills. In fact, a current ratio of 2.0 means that a company can cover its current liabilities two times over. 
(c) The cash possessions of JKL Ltd have increases by 300% from $50000 to $200000, which will be benefit for the liquidity. It is also important to know the high stock turnover rate or how rapidly its things are sold because the current rate is a decent mark of the organization’s liquidity.