When calculating an Acid Test Ratio to evaluate the liquidity of each company, if you were...

When calculating an Acid Test Ratio to evaluate the liquidity of each company, if you were to see "Available-for-sale investment securities" on the Balance Sheet under assets. Would you classify that as a Marketable Security? / would that be included when doing an Acid Test Ratio.

Expert Solution

Available for sale investment securities is classified as current asset and also Marketable Securities as they can be liquedated as and when needed, therefore i will classify Available for sale investment securities as a Marketable Security.

Acid test ratio is calculated to ensure whether the entity has sufficient short term assets(Current Asset) to cover its short term liabilities(Current liabilities). Therefore asset which are easily convertible in to cash or easily can be liquidated, only that to included while calculating Acid test ratio.

Accordingly, as mentioned above, Available for sale investment securities is classified as current asset and also Marketable Securities as they can be liquedated as and when needed, therefore it will be included when doing Acid Test ratio.

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ekkarill92 answered 1 year ago

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