Impairment and Quick ratio: Difference between pages

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1.  
''Financial ratio analysis - liquidity ratios.''


''Financial reporting''.
(Current assets <i>less</i> Inventories) / Current liabilities.


A reduction in the recoverable amount of an asset below its carrying amount.
The quick ratio gives a very rough indication of the liquidity (or solvency) of the reporting entity.<br />
If the quick ratio were to fall below 1.0, this would indicate that the entity would not be able to meet its current liabilities out of its cash in hand and the proceeds of its other current assets (excluding inventories).


Impairment may apply, among other assets, to tangible fixed assets, goodwill, loans or inventory.


Relevant accounting standards include IAS 36, Section 27 of FRS 102 and IAS 2.
<b>Example</b><br />
Current assets (excluding inventories) = £3m. <br />
Current liabilities = £4m. <br />


The Quick ratio is: <br />
= 3 / 4 <br />
= 0.75.


2.


The related accounting adjustment required to reduce the carrying amount of the asset in the balance sheet - to the new lower recoverable amount - and to recognise an impairment loss.
The quick ratio is also known as the Acid test or the Acid test ratio.<br />
Inventories are sometimes also known as Stock.




3.
== See also ==
* [[Balance sheet ratio]]
* [[Current assets]]
* [[Current liabilities]]
* [[Current ratio]]
* [[Inventory]]
* [[Liquidity]]
* [[Liquidity ratio]]
* [[Stock]]


More generally, any weakening, damage or reduction in value.
[[Category:Accounting,_tax_and_regulation]]
 
[[Category:The_business_context]]
Causes of impairment may include damage, obsolescence and declining credit quality.
[[Category:Liquidity_management]]
 
 
== See also ==
* [[Fixed assets]]
* [[FRS 102]]
* [[Goodwill]]
* [[IAS 2]]
* [[IAS 36]]
* [[IFRS 9]]
* [[Impaired loan]]
* [[Net book value]]
* [[Net realisable value]]

Latest revision as of 19:09, 3 February 2019

Financial ratio analysis - liquidity ratios.

(Current assets less Inventories) / Current liabilities.

The quick ratio gives a very rough indication of the liquidity (or solvency) of the reporting entity.
If the quick ratio were to fall below 1.0, this would indicate that the entity would not be able to meet its current liabilities out of its cash in hand and the proceeds of its other current assets (excluding inventories).


Example
Current assets (excluding inventories) = £3m.
Current liabilities = £4m.

The Quick ratio is:
= 3 / 4
= 0.75.


The quick ratio is also known as the Acid test or the Acid test ratio.
Inventories are sometimes also known as Stock.


See also

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