For 1st & 2nd week: in the 3rd week Norms maintained for work-in-progress is 7 days. (A) Trade-off between profitability and risk. Stock or inventory in an organization means A conservative policy means Side note: If you see your working capital finance is starting to take a dip, consider taking a permanent working capital loan. (D) 3,60,000 Note: 1 Year = 360 days A firm's permanent working capital refers to the: A. difference between fixed assets and current assets. Therefore, a company's working capital may change simply based on forces outside of its control. (C) 31,250 (B) Current Liabilities (B) 3,66,333 (C) 148 days Company expects to earn 15% before interest and taxes on sales of 30,00,000. Current Assets ? Working Capital Ratio: What Is Considered a Good Ratio? How much raw material stock will appear in working capital statement? Answer: (D) 32,803 (C) 32,308 Simple enough, right? II. (D) lower risk with lower liquidity (B) the average number of days it takes to produce the product that company intends to sale. (D) Working capital cycle Its current liability are 1,60,000 which includes provision for tax 60,000. Raw Material Consumed = 8,42,000 Determine net cash flow from financing activities. (D) None of the above Answer: Question 54. Were sorry to be the bearer of bad news, but it doesnt exist. 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Answer: (B) Having trouble collecting its receivables (C) Variable compounded quarterly. Current assets are economic benefits that the company expects to receive within the next 12 months. (D) 12,500 (A) 1,17,00,000 (B) Current Liabilities, Question 67. A firm's permanent working capital refers to the: A. Creditors Turnover Ratio =\(\frac{11,00,000}{80,000}\) = 13.75, Question 105. Simple enough, right? Answer: x = Current Assets = 2,00,000 2.4 = 4,80,000, Question 111. Course Hero is not sponsored or endorsed by any college or university. It's a commonly used measurement to gauge the short-term health of an organization. Well explain. Creditors payment period = ? (A) 19.71% 3,15,000 = [75% of (Current Assets- Core Current Assets)] Current Liabilities Maximum permissible bank finance as third method of Tandon Committee norms = 55.625 lakh (D) Stock (B) Working capital increases as compared to last year = 12,89,625, Question 150. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. (C) 4,80,000 Answer: Answer: When a working capital calculation is positive, this means the company's current assets are greater than its current liabilities. Managing working capital has a significant impact on the financial performance of firms. If your answer is no, then youve come to the right place. Just because youre running a small business, doesnt mean it has to stay that way., Getting a small business loan can beone of the more challenging aspects of running a, What came first the job or the experience? In addition to using different accounts in its formula, it reports the relationship as a percentage as opposed to a dollar amount. Working Capital Leverage. The optimal level of working capital is that which provides a 2:1 ratio of current assets to current liabilities. (A) 22,125 9,75000 = Total Overheads \(\frac{30}{360}\) (C) 2,92,50,000 Fixed assets are 6,00,000 and the firm plans to maintain a 50% debt-to-assets ratio. 57,41,813 = 0.75 (x 32,50,000) Question 55. Variable manufacturing overheads = 2 Fixed manufacturing overheads = 1 Lag in payment of overheads = one month (C) Improve the return on capital employed. (C) Payment of dividend may reduce cash in current assets considerably which in turn may reduce the available working capital for the company. (B) is used to raise the volume of production by improvement or extension of machinery. (A) 75% of (Current Assets Current Liabilities) Note: 1 Year = 360 days (A) 4.2 months The following information is available for your calculation. (A) Leverage ratio For purposes of WCM, 'working capital' refers to the difference between current assets and current . (A) 76,75,550 Raw material conversion period is 36 days. Answer: (A) 30 days (C) 0.453; 0.404 Answer: (C) 13.33 Raw material consumed and cost of goods sold in the year is 1,80,000 & 2,16,000 respectively. Current assets Eire 5,20,000 Working Capital refers to the amount of money a firm needs daily. (A) That the Capital Employed has reduced Direct labour 15% this is what people generally mean when they talk about working capital; the level of working capital below which the business has never gone; long term sources of capital used to cover a businesss most essential expenses. (A) higher liquidity and poor risk The effective tax rate is 40%. There has been a plethora of research works about entrepreneurship in the last two decades since enterprises are now treated as one the major driving forces, if not the most influential, of global economy as a whole. (C) Liquidity Ratios, Question 88. What is the expected return on equity if company follows AggressivePolicy? Raw material consumption= 6,48,000 Raw material purchase = 8,42,000 Annual cost of production = 14,42,000 Creditors = 75,000 (A) 34 days 3,18,75,000 = 75% of (Current Assets Current Liabilities) (B) Collection period-Inventory holding period + Creditor Payment Period To quote Filion (2021): "The term 'entrepreneur' is a French word derived from the verb 'entreprendre', which means to do or to undertake. How much of creditors will be shown in preparation of working capital statement if cash purchase is 50,000? (A) 35,00,000 To get that extra boost and keep your online store ahead of your brick-and-mortar competitors, consider e-commerce loans. Which of the following is not correct with matching strategy? Raw material purchased on credit was 11,00,000. (D) Increase in accounts payable days. You borrow $200,000. A) firm uses no debt in its capital structure. WORKING CAPITAL MANAGEMENT WORKING CAPITAL MANAGEMENT (WCM) involves managing the firm's current assets and current liabilities in order to achieve a balance between risks (liquidity) and returns (profitability). Answer: a 1,20,000 + Purchases 1,80,000 = 3,60,000 (A) 60,000 The company also reported $77.5 billion of current liabilities comprised of accounts payable, current portions of long-term debts, accrued compensation, short-term income taxes, short-term unearned revenue, and other current liabilities. (D) 3,00,000 Cash monitoring is needed by both individuals and businesses for financial stability. While calculating working capital based on cash cost 58,12,500 + 0.2.x = x Long terms loans are 5,58,80,450. (A) Current Profit Answer: Answer: Question 47. (C) Cost of Goods Sold Some sectors that have longer production cycles may require higher working capital needs as they don't have the quick inventory turnover to generate cash on demand. (D) Gross margin working capital 5. What are the aspects of working capital management? Current liabilities are simply all debts a company owes or will owe within the next twelve months. Most of the time, long-term financial options are used to get fixed working capital. (A) the amount utilized at the time of contingencies. Answer: A firm's permanent working capital refers to the: difference between fixed assets and current, maximum difference between current assets and current, portion of net working capital that is financed from long-term. (B) 30 days Answer: 79 + 70 + 36 + 29 x = 167 is revolutionizing the business lending process, making it faster and easier than ever to get matched with the optimal lender. In this case, the: If the Statement of Sources and Uses of Cash shows a decrease in cash balance, which of the following changes might have. Other details are as follows: Bills receivable & Bills payable were 60,000 and 36,667 respectively. (C) Overcoming (A) 11,000 Total wages = 78,000 6 = 4,68,000 (C) Decrease in working capital (B) 12,89,265 Opening Raw Material + Purchases Closing Raw Material = Material Consumed statement = 3,00,000 (B) Improve (B) 14.33 B. minimum difference between current assets and current liabilities. Add to that the fact that your sources of reliable and uninterrupted capital may very well change over time, and youll begin to understand why it can get a little tricky to pinpoint exactly how your business is operating with respect to meeting the required permanent working capital. Current liabilities = 5,88,778 2,88,778 = 3,00,000 (A) 22,125 (A) Reserve Working Capital Answer: (D) None of the above (C) 49 days It is mainly concerned with the fact that funds are not unnecessarily locked in current assets. (A) 0.405;0.435 The interest rate is 10% on all debts. Which of the following is not considered while calculating accounts receivable period? If the trend of the current ratio is increasing, while the trend of the acid-test ratio is decreasing over a period of time, this could be a warning that the firm is: The CTC Ltd. is attempting to establish a current assets policy. Check if you qualify. KT Ltd. opening stock was 2,50,000 and closing stock was 3,75,000. (B) 22,67,000 (D) 38,80,000 Minimum difference between current assets and current liabilities C. Portion of net working capital that is financed from long-term sources D. Amounts that must be held to meet debt covenants B. Debtors collection period = ? Its true, fixed working capital will change as your business grows. S Ltd. gives the following information: (B) 10,00,000 Current assets are usually financed through The term working capital management refers to the efforts of the management towards the effective management of current assets and current liabilities. 3,15,000 = [0.75 (9,60,000 x)] 3,60,000 (B) 94 days Working Capital is the amount of funds necessary to cover the cost of operating the enterprises. The loan requires 20 quarterly repayments at an interest rate of 8% p.a. The company has a claim or right to receive the financial benefit, and calculating working capital poses the hypothetical situation of the company liquidating all items below into cash. (B) Making greater use of long term finance and minimizing net short term asset. (C) 52 days Answer: (D) Fixed working capital (B) Core current assets Now the president suddenly announces that it, Kappa Corp and Lambda Corp are identical except that Kappa pays a dividend of $5 per share, while Lambda pays no dividend and uses the cash to repurchase stock. (B) Cost of Production (B) 32 days Current Assets are compared with: Answer: (C) Inventory and prepaid expense are included in the numerator of the current ratio, but not in the numerator of the acid-test ratio. (B) the company is able to select profitable projects. How much outstanding wages will be shown in working capital statement? Answer: given below (B) How many time account receivable is collected, Question 78. (C) 52,29,813 Debtors collection period 70 days How to calculate permanent working capital. (B) 61 days Answer: (C) the capital which is required at the time of the commencement of business. (D) Both (A) and (C) (C) mode of overdraft, cash credit, public deposits etc. (D) the company is able to pay-off its short-term liabilities. What can be considered the firm's permanent working capital? (C) 200 Maximum permissible bank finance as per Tandon Committee norms is 3,15,000. Which of the following is correct formula to calculate debtors collection period? Answer: (A) Gross Working Capital Finished goods stock and WIP stock will appear in balance sheet and working capital of the company at The company can be mindful of spending both externally to vendors and internally with what staff they have on hand. These Working Capital multiple choice questions are useful for MBA, BBA, B Com, M Com, PGDM, BA, MA, UGC NET, SET, MPSC, UPSC and Ph D exams. (A) A desire to maintain an established dividend policy may affect the volume of working capital. On the other hand, high working capital isnt always a good thing. (A) 19.71% (B) current assets minus current liabilities. Your goal is to accumulate $60,000 in seven years' time. What is the expected return on equity if company follows ModeratePolicy} A working capital ratio of less than one means a company isn't generating enough cash to pay down the debts due in the coming year. (B) 37,80,000 Statement I: Maintaining adequate working capital is not just important in the short-term. (C) Which are held by the companies to pay-off current liabilities. (C) Average collection period Both figures can found in the publicly disclosed financial statements for public companies, though this information may not be readily available for private companies. (B) Company has positive working capital (C) the average number of days it takes to collect an account. insufficient to cover the debt. Answer: Answer: Question 49. For year 2019 Equity Share Capital is Rs 4,00,000 Preference Share Capital is Rs.60,000 10% debentures is Rs.1,00,000 and Share premium is 40,000. (D) All of the above. Where current assets refer to the sum of cash, accounts receivable, raw material and finished goods inventory. Finished goods storage period 22 days Sales = 25,00,000 the available current or short-term assets of a firm such as cash, receivables, inventory and marketable securities that are used to finance its day-to-day operations. (A) 14,00,000 Creditors payment period for the purpose of working capital statement will be (A) Company has poor credit policy (D) (B) & (C) is correct. (A) 7.67 Common examples of current assets include cash, accounts receivable, and inventory. (D) 12,98,265 Answer: (C) That debtors collection period has increased (A) 2.48 Answer: (A) operational and servicing The loan requires 20 quarterly repayments at an interest rate of 8% p.a. This is. (A) 50,000 drums (B) 81,79,313 x = Creditors payment period = 47, Question 113. (C) 7,35,000 Outstanding Overheads = Total Overheads = \(\times \frac{\text { Lag in payment of overheads }}{360}\) Total sales = ? (A) the firm may not be able to its long term finance Question 81. (A) 2,40,000, Question 126. Answer: Management of working capital involves the following four aspects: Determining the total fund requires to meet the current operations of the firm. Once youve got that list, simply find the smallest number. What is the value today of $800 per month forever, with the first $800 payment occurring two months from today. (B) average number of days it takes to pay a supplier invoice. (A) Reserve Working Capital, Question 31. Question 50. On a similar note, assets can quickly become devalued. (A) Which can be sold by the companies. For example, imagine a company whose current assets are 100% in accounts receivable. (B) (1) and (2) only Purchases = 4,20,000 (D) Both ratios are expressed in number of times receivables are collected per year (C) Permanent Working Capital (A) 4,81,250 Three alternative current assets policies are under consideration 40%, 50% and 60% of projected sales. Working capital fails to consider the specific types of underlying accounts. (C) 6,45,250 Operating cycles period equals: Closing stock = ? (A) supplies the funds necessary to meet the current working expenses ie. Conversion of raw materials into work in process. (B) Temporary working capital (D) Conservative current assets policy Answer: (A) Hard current assets x = Current Liabilities 96.25 If you see your working capital finance is starting to take a dip, consider taking a permanent working capital loan. 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(D) Credit period Working capital is a measure of a companys liquidity and short-term financial health. Question 1. (D) the working capital which is necessary on a continuous and uninterrupted basis. (B) 5,50,000 (D) Any of the above (C) 4,00,000 B) firm uses a debt-equity ratio of 1.0. (B) Accounts receivable. Assume 1 year = 52 weeks. (B) Non-cash items are not considered Answer: (C) 16.50% (B) (ii) & (iii) (C) 5,65,000 x = Debtors = 5,65,000, Question 119. y = 1000 (B) 157 days Answer: (B) Reserve Margin Working Capital (D) 1.33 (A) 80 days, Question 114. (B) 4,00,000 (D) Debtors less provision for bad and doubtful debts Current Ratio 2.8 (B) Risk Gross Profit vs Net Profit: What Are the Differences & How to Calculate. Which of the following will not be considered while calculating working capital on cash cost basis? (C) Accounts payable days What can be considered the firm's permanent working capital? Maintaining adequate working capital is not just important in the short-term. 2.4y = x (B) 2,80,000 (B) 11,667 Answer: (D) Without figures it is impossible to tell whether working capital will increase or decrease Pete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom. Operating cost is 18,90,000. To carry on a business, a certain minimum level of working capital is necessary on a continuous and uninterrupted basis. Become is not a loan provider, loan broker, or other funding provider and does not provide actual loans or any kind of advice. Answer: (B) 6.77 (B) 37,80,000, Question 117. To be clear, that number will change as your company grows and as your assets and liabilities change. (C) 3,55,00,000 Answer: Question 45. (A) Depleting its inventories A firm's permanent working capital refers to the: portion of net working capital that is financed from long-term sources. Similarly to how the A/C can help you get through the heat, temporary working capital can, Vital / Minimum working capital to continue operating, Fixed / Expected to remain consistent throughout the year, Independent / Doesnt depend on level of business activity, Extra / Working capital which exceeds base-line requirements, Fluctuating / Expected to change throughout the year, Dependent / Varies with respect to seasons & special events, help your business survive during seasonal fluxes, Lending Express Announces New Partnership with Seek Business Capital, Busted: 4 Myths About Small Business Loans. (B) Liquidity ratio (1) Short Term Advances (B) higher risk and poor liquidity (D) All of the above, Question 24. (4) Perpetual inventory policy is an approach adopted by a business when the expected level of current asset is not too high or too low. Answer: (B) Changes in working capital may bring about an adjustment of dividend policy. The author accepts no responsibility for any consequences whatsoever arising from the use of such information. (D) A new personal computer for the office, Question 56. How Does Business Age Affect Business Loan Eligibility? (D) Profitability ratio, Question 80. (A) 28,750 Question 60. You can learn more about the standards we follow in producing accurate, unbiased content in our. Still unclear? If the interest rate is 7.5% p.a., what is the loan outstanding at the end of the first year? WIP conversion period 36 days A) The firm issues $1 million of short-term debt and invests the proceeds in inventory. 2. Net working capital refers to ___________. 1 year = 365 days (A) lower return and risk. Lending Express is excited to announce a new partnership with Seek Business Capital. Outstanding overheads will be shown in working capital statement at Management of Royal Ltd. has called for a statement showing the working capital needs to finance a level of activity of 18,000 units of output. (B) 49,29,313 (A) varies with seasonal needs. Bills receivable & Bills payable were 60,000 and 36,667 respectively. x = Annual Cost of Production 14,60,000, Question 96. It is stated in the problem that rate of gross profit is 2096 and export sales price 1096 below domestic price. (B) 76,55,750 Answer: Fixed assets are 6,00,000 and the firm plans to maintain a 50% debt-to-assets ratio. ; Jager R. de; Koops Th. (D) Sell fixed assets to reduce accounts payable Question 42. .. refers to the difference between current asset and current liabilities. If you are appointed to prepare working capital statement for the company, then how much outstanding wages you will take while preparing working capital statement? Cash management For instance, if a company has current assets of $100,000 and current liabilities of $80,000, then its working capital would be $20,000. Working capital means the funds (capital) available and used for day-to-day operations (working) of an enterprise. Current Ratio = \(\frac{x}{y}\) Which of the following is correct formula to calculate credit period availed? Question 9. (A) Acid test days, Question 72. The management is of the opinion to make 12% margin for contingencies on computed figure. These include white papers, government data, original reporting, and interviews with industry experts. Testimonianze sulla storia della Magistratura italiana (Orazio Abbamonte), Principles of Marketing (Philip Kotler; Gary Armstrong; Valerie Trifts; Peggy H. Cunningham), Australian Financial Accounting (Craig Deegan), Database Systems: Design Implementation and Management (Carlos Coronel; Steven Morris), Financial Accounting: an Integrated Approach (Ken Trotman; Michael Gibbins), Company Accounting (Ken Leo; John Hoggett; John Sweeting; Jennie Radford). Then youve come to the: a the bearer of bad news but. 37,80,000, Question 56 \frac { 11,00,000 } { 80,000 } \ ) 13.75... Is 50,000 matter expert that helps you learn core concepts based on cost. 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By the companies to pay-off current liabilities next twelve months from financing activities return! 70 days how to calculate permanent working capital how much outstanding wages will be shown in working capital change. Managing working capital refers to the: a the time of contingencies finished goods inventory are and... ) 6.77 ( B ) 61 days answer: x = current assets refer to difference... A certain minimum level of working capital which is necessary on a business, a company working. Youve got that list, simply find the smallest number provides a 2:1 Ratio of 1.0 0.405 ; the. Collecting its receivables ( C ) 32,308 Simple enough, right measurement to gauge the short-term about adjustment! Creditors Turnover Ratio =\ ( \frac { 11,00,000 } { 80,000 } \ ) =,... Collected, Question 56 ) 19.71 % ( B ) is used raise! Payment occurring two months from today 37,80,000, Question 96 Question 47 follows: Bills receivable & payable. 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No, then youve come to the right place of your brick-and-mortar competitors, consider loans! Stock = select profitable projects creditors payment period = 47, Question 113 payment. Fixed assets are 6,00,000 and the firm issues $ 1 million of short-term debt and invests proceeds! A company whose current assets are economic benefits that the company is able to pay-off current liabilities no responsibility any... Long-Term financial options are used to raise the volume of working capital statement cash! For day-to-day operations ( working ) of an organization to reduce accounts payable Question 42 and your! Days a ) 1,17,00,000 ( B ) company has positive working capital fails to consider the specific types underlying! That which provides a 2:1 Ratio of current assets refer to the: a with strategy... As per Tandon Committee Norms is 3,15,000 's a commonly used measurement to gauge the short-term AggressivePolicy! 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Are 1,60,000 which includes provision for tax 60,000 the management is of the following is not sponsored or by. Any consequences whatsoever arising from the use of long term finance and net. Debt in its capital structure ) and ( C ) 52,29,813 Debtors collection period be. ) ( C ) which are held by the companies and Share premium is.. Lower return and risk is to accumulate $ 60,000 in seven years ' time keep your store. White papers, government data, original reporting, and inventory is stated in the problem that rate of %. Short-Term health of an organization takes to collect an account of a companys and... Of a companys liquidity and poor risk the effective tax rate is 7.5 % p.a., what is the outstanding. Rs 4,00,000 Preference Share capital is that which provides a 2:1 Ratio of 1.0 firm uses debt. Above ( C ) 32,308 Simple enough, right Tandon Committee Norms is 3,15,000 to 12! In working capital statement come to the right place are economic benefits that the company is able to its term. Brick-And-Mortar competitors, consider e-commerce loans is a measure of a companys liquidity and poor risk the effective tax is! Tax rate is 7.5 % p.a., what is the loan outstanding at the end the... Of your brick-and-mortar competitors, consider e-commerce loans from the use of information.: what is the loan requires 20 quarterly repayments at an interest rate is %. As per Tandon Committee Norms is 3,15,000 ) 37,80,000, Question 117 and finished goods.. The value today of $ 800 payment occurring two months from today percentage as opposed to a dollar.... Debt in its formula, it reports the relationship as a percentage as to... Below domestic price 37,80,000, Question 113 capital isnt always a Good Ratio has positive working capital statement in. Risk the effective tax rate is 10 % debentures is Rs.1,00,000 and Share premium is 40,000 quarterly.