Lesson Plan

• Describe the purpose of the liquid (acid‑test) ratio and how it differs from the current ratio.
• Calculate the liquid ratio using the formula \( (Current Assets – Inventory) ÷ Current Liabilities \) with accuracy to two decimal places.
• Interpret liquid‑ratio results to assess a company’s short‑term financial health.
• Identify common errors when computing the ratio and apply checks to avoid them.

• Projector or interactive whiteboard
• Printed balance‑sheet extracts (e.g., ABC Ltd. example)
• Student worksheets with practice questions
• Calculators
• Whiteboard and markers
• Exit‑ticket slips

Begin with a quick question: “If a company can’t sell its stock quickly, how would it pay its bills?” Connect this to students’ prior knowledge of the current ratio, then state that today they will master a stricter liquidity test. Success criteria: students will correctly compute and interpret the liquid ratio.

1. Do‑Now (5 min): Mini‑quiz on current‑ratio concepts.
2. Direct Instruction (10 min): Explain the definition, formula, and components of the liquid ratio; show the flow‑chart diagram.
3. Guided Practice (12 min): Walk through the ABC Ltd. worked example on the board, prompting students to identify each component.
4. Independent Practice (15 min): Students complete two practice questions from the worksheet, calculating the ratio and providing brief comments.
5. Check for Understanding (5 min): Whole‑class review of answers; highlight common pitfalls.
6. Extension (5 min): Discuss why a high current ratio can mask liquidity problems, linking to the third practice question.

Recap the steps for calculating the liquid ratio and the key interpretation thresholds ( > 1, = 1, < 1). Students write an exit ticket stating one mistake to avoid when computing the ratio. For homework, assign three additional problems from the textbook to reinforce the skill.