Answer: Current ratio

## 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)

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