Explanation

When inventory is written down, it reduces the value of inventory on the balance sheet. Let's analyze how this affects each ratio:

1. Quick Ratio (Acid-Test Ratio)

Formula: (Current Assets - Inventory) / Current Liabilities

• Inventory write-down reduces inventory value
• Since inventory is subtracted in the numerator, a decrease in inventory actually increases the quick ratio
• Example: If current assets = $100, inventory = $40, current liabilities = $50
  • Quick ratio = ($100 - $40)/$50 = 1.2
  • After $10 inventory write-down: inventory = $30
  • Quick ratio = ($90 - $30)/$50 = 1.2 (no change in quick ratio)
  • Actually wait, let me recalculate: After write-down, total current assets decrease by $10 to $90, inventory decreases to $30
  • Quick ratio = ($90 - $30)/$50 = $60/$50 = 1.2 (same as before)
  • Actually, the quick ratio remains unchanged because both numerator and denominator of the subtraction change proportionally

2. Current Ratio

Formula: Current Assets / Current Liabilities

• Inventory write-down reduces current assets (inventory is part of current assets)
• Current liabilities remain unchanged
• Therefore, current ratio decreases
• Example: Current assets = $100, current liabilities = $50
  • Current ratio = 2.0
  • After $10 inventory write-down: current assets = $90
  • Current ratio = $90/$50 = 1.8 (decrease)

3. Payables Turnover Ratio

Formula: Cost of Goods Sold / Average Accounts Payable

• Inventory write-down increases Cost of Goods Sold (COGS) in the period of write-down
• Accounts payable may or may not change
• Payables turnover ratio = COGS / Average Accounts Payable
• Since COGS increases, the ratio increases

Conclusion: The current ratio is the only one that clearly decreases as a direct result of an inventory write-down. The quick ratio remains unchanged (since inventory is subtracted), and the payables turnover ratio increases due to higher COGS.

Correct Answer: B (Current ratio)