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O Level Accounting (7707)•7707/12/O/N/20
Question 28 from 7707/12/O/N/20

Explanation

Increasing other receivables boosts current assets and the ratio

Steps:

  • Current ratio = current assets (CA) / current liabilities (CL); rising ratio indicates CA increasing or CL decreasing relative to each other.
  • Other receivables are part of CA, so their increase raises the numerator.
  • No change in CL is implied, isolating the effect to CA growth.
  • This explains the steady upward trend from 2.3:1 to 2.5:1.

Why C is correct:

  • Other receivables are current assets; increasing them directly increases the CA numerator in the current ratio formula, raising the overall ratio.

Why the others are wrong:

  • A: Decreasing inventory reduces CA, lowering the numerator and ratio.
  • B: Increasing other payables raises CL, increasing the denominator and lowering the ratio.
  • D: Decreasing trade receivables reduces CA, lowering the numerator and ratio.

Final answer: C

Topic: Interpretation of accounting ratios

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