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I want to ask a question about current assets and liabilties in relation to the current ratio.

I was provided with the following question:

Weavers Wedding Dresses has current liabilities on 31 December of £140,000 and its current ratio at that time is 2:2. What are the company's current assets?

I thought, that since 2:2 evidently should simplify to 1:1 then the current assets are equal to current liabilities, so current assets are also 140,000.

However, the answer states the following:

You know that current assets divided by current liabilties equals the current ratio. You are trying to find out the value for current assets (the unknown variable x) so your equation is x divided by £140,000 equals 2:2.

x / 140,000 = 2:2 Isolating x on one side of the equation gives you £140,000 times 2:2

x = 140,000 * 2:2

so your current assets are £308,000 (140,000 x 2:2)

You can prove this by plugging that figure into the first equation: £308,000 divided by 140,00 does equal 2:2. Hooray!

Now, I'm not sure if my upper-school mathematics qualifications have failed me, but I'm sure that I am not mistaken in my analysis as given in the straightforward fashion above?

Have I made an error in my calculations, if any?

A link to this book (Financial Accouting for Dummies, UK edition) is given here, which leads to the exact page in question.

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It's either a typo or a different notation for a decimal (although I've never seen a colon used as a decimal separator). They seem to be multiplying the liabilities by 2.2 (2 and 2 tenths) to get the current assets.

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  • Thank you! It's pathetic how they managed to format it as such. – vik1245 Oct 20 '20 at 11:07
  • Well, it is a "for dummies" book... But I agree it's poor editing. – D Stanley Oct 20 '20 at 12:36
  • I agree that the book is very very good for beginners, but for the love of the Lord haha I've had to check so many errors - if the accountant maths I've discovered in their book is indicative of the mathematical requirements in their line of work (assuming the errors are true) then those accountants must be getting off the hook scot-free! – vik1245 Oct 20 '20 at 15:48

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