2 The following information relates to N1 rabbits. Calculate the acid-test ratio for 2022 and Show the formula.

The gearing ratio measures the proportion of a business's operations that are financed by debt versus equity.

Total Equity is the difference between Total Assets and Total Debt.
Given:
Total Assets = R600 000
Total Debt = R150 000

• To the farmer: A gearing ratio of 0.33:1 means that for every R1 of equity, the farm has R0.33 of debt. This indicates a relatively low reliance on borrowed funds, suggesting financial stability and lower risk. The farm is largely financed by its owners' capital.
• To the bank manager: This low gearing ratio signifies that the farm has a strong equity base relative to its debt. This makes the farm a less risky borrower and more attractive for future lending, as there is a substantial buffer of owner's capital to absorb potential losses before creditors are affected.

2.1.2 Calculate the current ratio of the undertaking.

The current ratio measures a business's ability to meet its short-term obligations with its short-term assets.

Given:
Current Assets = R120 000
Current Liabilities = R45 000

A current ratio of 2.67:1 means that the farm has R2.67 in current assets for every R1 in current liabilities. This indicates strong liquidity, meaning the farm is in a very good position to meet its short-term financial obligations as they fall due. A ratio above 2:1 is generally considered healthy.

2.2 Calculate the acid-test ratio for 2022.

The acid-test ratio measures a business's ability to meet its short-term obligations with its most liquid assets, excluding inventory.

For 2022:
Current Assets = R150 000
Stock and supplies included under current asset = R40 000
Current Liabilities = R75 000