Prepaid expenses 37,500 (A) Gross Working Capital Question 26. Answer: (D) 1,10,00,726 Short-term assets financed with equity. (D) Capital relating to main projects of the company Note: 1 Year = 360 days Answer: (B) Companys inventory purchasing efficiency (B), Question 66. After all, a business cannot rely on paper profits to pay its billsthose bills need to be paid in cash readily in hand. Its true, fixed working capital will change as your business grows. Answer: In mergers or very fast-paced companies, agreements can be missed or invoices can be processed incorrectly. (D) 49 days Working capital management is a business strategy designed to ensure that a company operates efficiently by monitoring and using its current assets and liabilities to their most effective use.. The ratios of cost to selling price are Creditors payment period = 60 days Material consumed = 1,20,000 Material purchased in cash = 10,000 Material purchased on credit = 90,000 Creditors that will appear in balance sheet and working capital statement = ? Statement I: Maintaining adequate working capital is not just important in the short-term. (D) 2.5 (two and half) Closing stock = 10,10,000 (C) Liquid ratio The company can avoid taking on debt when unnecessary or expensive, and the company can strive to get the best credit terms available. Therefore, companies that are using working capital inefficiently or needing extra capital upfront can boost cash flow by squeezing suppliers and customers. Sundry debtors = ? Another way to review this example is by comparing working capital to current assets or current liabilities. (C) Fixed Assets Answer: It is not fixed at any rate. Answer: (C) 4,80,000 [1 Year = 360 days] (B) Company has positive working capital If a firm has 100 in inventories, a current ratio equal to 1.2, and a quick ratio equal to 1.1, what is the firms Net Working Capital? (B) 10,00,000 Stock of the year is 20,000 more than what it was at the beginning of the year Other things remaining constant, if the debtors increases as compared to last year it means 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. A higher current assets/fixed assets ratio indicates (C) the average number of days it takes to collect an account. (C) Average collection period Answer: If annual sales figure is not available then which of the following figure will be taken as base for calculation of debtors? (B) Current assets & current liabilities, Question 70. For 1st & 2nd week: in the 3rd week Answer: Three alternative current assets policies are under consideration 40%, 50% and 60% of projected sales. (B) the firm may not be able to meet its liabilities, Question 48. Finished goods stock and WIP stock will appear in balance sheet and working capital of the company at (C) Stock Question 148. To get that extra boost and keep your online store ahead of your brick-and-mortar competitors, consider e-commerce loans. Let the creditors payment period be x. (D) 0.435; 0.405 As the result, net working capital indicates the financing needs of a firm, both through long-term and short-term financing sources. is revolutionizing the business lending process, making it faster and easier than ever to get matched with the optimal lender. (A) As average collection period increases (decreases) the accounts receivable turnover decreases (increases) It's calculated as current assets divided by current liabilities. (A) Collection period+Inventory holding period Creditor Payment Period, Question 71. Answer: Answer: From the following information calculate the net working capital: Working capital, also known as net working capital (NWC), is the difference between a company's current assets such as cash, accounts receivable/customers' unpaid bills, and inventories of. If a firm has insufficient working capital and tries to increase sales, it can easily over-stretch the financial resources of the business. (C) 7,35,000 Answer: If credit sales for the year is ? In fact, there are several kinds of working capital that a small business owner should know about, including: If youre still not entirely clear on what the differences are between permanent and temporary working capital, keep reading. Answer: It is a financial measure, which calculates whether a company has enough liquid assets to pay its bills that will be due within a year. (A) 29 days (B) Net working capital (C) 1,09,07,550 (B) the firms investment in current assets. Here are some other guides to help you measure your businesss financial health: The first thing youll want to do is calculate your businesss net working capital for each day. (A) 69,75,000 This included cash, cash equivalents, short-term investments, accounts receivable, inventory, and other current assets. Maximum permissible bank finance as per first method of Tandon Committee norms was 57,41,813 while current liabilities are reported at 32,50,000. (C) 32,308 (C) Cost of Goods Sold Creditors + Bifis Payable Account Payable (330) O A. Operating cost = ? (A) operational and servicing (B) long term (C) operational and financial (D) positive and negative Answer: (C) operational and financial Question 9. portion of net working capital that is financed from long-term sources. Decrease in current assets means Current assets = 60,00,000 32,00,000 = 28,00,000 Liquid ratio 1.6 Question 83. (B) 24.00% (A) [50% of (Current Assets Core Current Assets)] Current Liabilities Answer: How much of creditors will be shown in preparation of working capital statement? (B) 61 days, Question 124. Regardless of the exact dollar amount, what remains true is that if your businesss capital were to fall below the fixed working capital requirement its not good. (A) 80 days (A) supplies the funds necessary to meet the current working expenses. (D) 90,000; 31,920 Current assets are usually financed through (B) 24.00%, Question 144. (B) 7596 of Current Assets Current Liabilities Answer: In deciding the appropriate level of current assets for the firm, management is confronted with a trade-off between profitability and risk. Working capital is calculated by taking a companys current assets and deducting current liabilities. (1) Nature and size of business Learning Objective: 19-02 Trace a firm's sources and uses of cash and evaluate its need for short-term borrowing. Where current assets refer to the sum of cash, accounts receivable, raw material and finished goods inventory. Question 18. Operating cycle is also called as = 12,89,625, Question 150. Answer: Purchases = 4,20,000 An aggressive policy produces From the following data calculate finished goods conversion period for the years 2019 & 2020. (A) Depreciation is ignored Working Capital Cycle. WC(working capital) implies the income or money which will be required to fulfill the firms or companys present obligations or STO(short-term obligations). (D) the company is able to pay-off its short-term liabilities. (A) 2,40,000 Therefore, at the end of 2021, Microsoft's working capital metric was $96.7 billion. So, the net result is zero, If a firm decided to speed up its collection from its customers by reducing the receivables period and kept the. 20,000. By only looking at immediate debts and offsetting them with the most liquid of assets, a company can better understand what sort of liquidity it has in the near future. = 57,41,813, Question 118. 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. Which of the following represents the amount utilized at the time of contingencies? Raw material stock velocity 79 days A negative working capital means that -.. Opening stock = 9,90,000 Calculate the number of drums to be manufactured. Projected annual sales 65 lakhs Answer: Current Ratio vs. Quick Ratio: What's the Difference? Thats the difference between permanent and temporary working capital in a nutshell. (A) an example of moderate risk-moderate (potential) profitability asset financing. (C) 16.50% It is computed by deducting CL(current liabilities) from CA(current assets). [1 Year =360 days] (A) Hard current assets x = Current Assets = 1,09,05,750, Question 102. Debtors 55,12,000 (A) 6,25,000 (C) 1.22 (B) 23,40,000, Question 100. (C) 5,83,000 (D) Cant say (A) Matching/hedging Approach (A) 54 days 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, A firm has borrowed $1 million and assigned its receivables to the lender. Note: 1 Year = 360 days (C) Not enough data Wages are paid as follows: Answer: (C) 29,00,000 Approval of an actual loan from a third-party lender is subject to a separate assessment process by the third-party lender and the loan is subject to the third-party lender's terms and conditions. At the end of 2021, Microsoft (MSFT) reported $174.2 billion of current assets. Answer: Answer: Calculate maximum permissible bank finance by Third Method of Tandon Committee norms. (B) 24.00% WIP conversion period 36 days x = Current Assets 1,000 1.2= 1,200 (B) Working capital increases as compared to last year (A) Depleting its inventories Its stock is priced at $100 a share and shareholders expect Zeta to pay dividends of $10 a year in perpetuity. (D) Hard current liabilities (D) Both (A) and (C), Question 37. Answer: (C) 0.453; 0.404 Answer: (B) Collection period-Inventory holding period + Creditor Payment Period Answer: (B) Fluctuating The interest rate is 10% on all debts. Stock turnover ratio = ? Select the correct answer from the options given below. Overheads accrue evenly throughout the year, total overheads incurred by the company are Interest rates are 6% p.a. Answer: Calculate the working capital from the following data: (B) the company is able to select profitable projects. All components of working capital can be found a company's balance sheet, though a company may not have use for all elements of working capital discussed below. Opening Raw Material + Purchases Closing Raw Material = Material Consumed Permanent sources Working Capital Management Working capital or short-term financial management refers to the administrators and control of more liquid resources to ensure sufficiency in covering day to day business operations, including anticipated contingencies. (A) 72 days (B) the average number of days it takes to produce the product that company intends to sale. Think about your business as a car. (B) the firms investment in current assets. This reduces immediate cash flow. (A) The current ratio includes inventory and quick ratio does not. Net working capital refers to In other words, efficient working capital management means ensuring sufficient liquidity in the . This requirement is referred to as (D) 8,00,000 (D) Goods that can be sold within a short span of time Further export sale has to be made 10096 from 90% for the purpose of calculation of gross profit. (B) Over trading, Question 30. Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price. (A) (1) only On a similar note, assets can quickly become devalued. Raw material purchased on credit was 11,00,000. Working Capita] = CA CL Getting your hands on the right type of working capital finance no longer requires you filling out mountains of paperwork! Answer: (C) 4,87,500, Question 142. Material consumed in income statement is shown at 3,60,000. (C) 90,000; 67,200 (B) All the assets available for sale (B) 39 days & 29 days (D) 12,00,000 Annual operating cost including depreciation of 2,10,000 was 21,00,000. Similarly to how the A/C can help you get through the heat, temporary working capital can help your business survive during seasonal fluxes. Answer: is an approach adopted by a business when the expected level of current asset is not too high or too low. A) Cost of Raw Materials B) Accounts Receiveable C) Accounts Payable D) Fixed, The longer an investor waits to take capital gains, the lower is the present value of the tax liability. What can be considered the firm's permanent working capital? (B) 3,66,333 Answer: (A) (i) &(iii) (D) Working capital turnover ratio (C) the firm may not be able to achieve its sale target If current assets increases by 20% and current liabilities decreases by 20% as compared to last year figures then Answer: Credit Sales = 24,00,000 (C) 52 days (C) Raw material consumed (D) 9,58,750 (D) no risk at all with low liquidity (A) 57,41,813 2. (B) Current ratio, Question 79. Question 10. Cost of production/purchase = 11,00,000 (D) 12,98,265 (D) Variable working capital, Question 22. Last, working capital assumes all debt obligations are known. If the interest rate is 7.5% p.a., what is the loan outstanding at the end of the first year? (D) 59 days (A) Current ratio (C) All the raw material, Semi-finished and the finished goods in the organization Answer: (D) 35 days & 25 days Answer: N Ltd. gives the following information: (C) Day-to-day capital (D) 39 days The company produces cement in200 kg drum. Explain the important ratio that would be used in following situation: (B) 80,000; 31,920 Answer: (A) Reduce Working capital is important because it is necessary for businesses to remain solvent. Your yearly loan repayments on a $500,000 loan over ten years are $72,842.96. The company has more than enough resources to cover its short-term debt, and there is residual cash should all current assets be liquidated to pay this debt. Answer: For example, Microsoft's working capital of $96.7 billion is greater than its current liabilities. The term 'working capital' generally refers to current assets only. Question and Answer forum for K12 Students. Opening stock + Purchase Closing stock = Cost of goods sold (D) 90,000 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. Closing stock = ? (B) higher risk and poor liquidity (A) 136.25 Question 50. Answer: 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. (C) 18,00,000 Gross working capital refers to Net working capital, on the other hand, shows the liquidity of a firm. Therefore, by the time financial information is accumulated, it's likely that the working capital position of the company has already changed. (C) Cost of Goods Sold Total sales of OLX Ltd. are 31,248 out of which 25% are cash sales. Working capital management is a strategy that requires monitoring a company's current assets and liabilities to ensure its efficient operation. A firm's permanent working capital refers to the: A. difference between current assets and current liabilities. Answer: The size of fixed working capital is proportional to the magnitude and growth of the business. If a company has substantial positive NWC, then it could have the potential to invest in expansion and grow the company. (D) Credit period, Question 69. (D) 2,40,721 TAFE NSW, Sample-GTE -for Student Visa applying on Australia, SITXCOM005 Manage conflict Learner Assessment Pack, CHCCOM003 Develop workplace communication strategies - Final assessment, Chapter 02 - The Helping Relationship and the Values That Drive It, Week 2 - Attitudes, stereotyping and predjucie, 14449906 Andrew Assessment 2B Written reflection. (B) 43 days (D) 12,00,000 3,18,75,000 = O,75x 52,50,000 If you. (D) 22,000 (D) Fluctuating Working Capital, Question 25. (C) Decrease in working capital, Question 73. (C) Both ratios are expressed in number of days Gross profit ratio = 20% (D) Profitability ratio (A) Holding period Statement I: (B) 22,67,000 (4) Perpetual inventory policy (A) 28,750 (B) Current Liabilities Assume the level of Core Current Assets to be 60 lakhs. 2.4y = x (A) Making greater use of short term finance and maximizing net short term asset. (B) Liquidity ratio (C) Long term funds (D) Equity Share Capital Answer: Selling price is 50 per unit and production and sales for the year are 69,000 units and 75,000 units respectively. Wages are paid for 1st and 2nd week in the 3rd week & for 3rd and 4th week in the next week. (B) 6.77 Opening stock 1,75,000, Total purchase 10,75,000 including cash purchase 1,75,000, total sales 15,00,000 out of which 20% are on cash basis. What amount of principal is repaid in the first three months? (B) the company currently is unable to meet its short-term liabilities, Question 12. (B) 20,652 (D) 3,00,000 What are the core current assets of Deelip Ltd? (B) 0.403;0.453 x = Current Assets = 20,93,250 Suppliers of material extend 4 week credit. (D) All of the above (D) Any of the above (B) 99 days (B) 20,000 Question 49. Temporary working capital usually fluctuates over the permanent working capital. (B) 12,500 (D) All of the above, Question 24. (C) 80,000 drums (A) Working Capital = Current Assets Current Liabilities Without any of those three, the car would not be able to perform its essential task properly. One production process cycle is completed in two month. (A) higher liquidity and poor risk (D) 1.33 (D) 49,41,813 Current Ratio = 2.4 (D) 10,20,000 (C) Debtors (C) is the amount of current assets required to meet a firms long-term minimum needs. (C) 29,00,000 (C) Both (A) & (B) (2) Manufacturing cycle (B) 45,000 Answer: 1 sources of permanent working capital are the. (C) Accounts payable days (B) 61 days 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. (D) an example of the hedging approach to financing. Fixed assets to proprietors fund = 1.25, Net Working Capital = 6,00,000. Rate of gross profit for export sale has to be taken 10%. 9,90,000 + x 10,10,000 = 20,00,000 (A) 18,000 Stock or inventory in an organization means Note: 1 Year = 365 days The loan requires 20 quarterly repayments at an interest rate of 8% p.a. Answer: Which of the following is relevant while planning for working capital requirement? 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Working Capital Management CS Executive Financial and Strategic Management MCQQuestions with Answers you can quickly revise the concepts. How much raw material stock will appear in working capital statement? (A) Increase in working capital C. portion of net working capital that is financed from long-term sources. (C) 6,45,250 Question 85. Question 140. Which of the following is correct formula to calculate debtors collection period? For reducing and controlling working capital requirement which of the following step is required to be taken (C) 4,00,000 decisions relating to working capital and short term financing, when current assets are lesser than current liabilities, a business that maintains a high level of working capital, when a business adopts a low level working capital policy based on some factors influencing its operations. Learning Objective: 19-01 Show how long-term financing policy affects short-term financing requirements. (C) 49 days (B) seeks to increase dependence on long term financing. To calculate working capital, subtract a company's current liabilities from its current assets. (A) Bills receivable (D) represents the amount utilized at the time of contingencies. Answer: (A) Trade-off between profitability and risk. If company calculates working capital on cash cost basis then debtors are 1 year = 360 days. Current assets of the company are Interest rates are 12% p.a. (D) the firm may taken some different project with low internal rate of return. (A) 18,000 Operating cycle days = ? From the information given below calculate the amount of fixed assets. (C) Variable Still unclear? (D) Which are converted in to cash within a period of one year. This means the company does not have enough resources in the short-term to pay off its debts, and it must get creative on finding a way to make sure it can pay its short-term bills on time. Labour cost: 6 per unit Working Capital = Current Assets - Current Liabilities. Both figures can found in the publicly disclosed financial statements for public companies, though this information may not be readily available for private companies. (C). The term working capital management refers to the efforts of the management towards the effective management of current assets and current liabilities. (C) Net working capital Bills receivable & Bills payable were 60,000 and 36,667 respectively. (A) If a company increases its current liabilities by 1,000 and simultaneously increases its inventories by 1,000, its current ratio must rise. With low internal rate of Gross profit for export sale has to taken. Next week from the information given below 11,00,000 ( D ) Variable capital... - current liabilities ) 80 days ( D ) all of the following represents the amount of principal repaid. Are 6 % p.a which are converted in to cash within A period of one.... 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Short-Term liabilities, Question 102 size of fixed assets answer: ( B ) 43 days ( B ) assets... Planning for working capital usually fluctuates over the permanent working capital and tries to increase dependence on long term.! Extend 4 week credit help you get through the heat, temporary working capital of $ 96.7 billion capital proportional! 1St and 2nd week in the inefficiently or needing extra capital upfront can boost cash flow by squeezing and! 4Th week in the the financial resources of the company are Interest rates 6. Question 50 is ignored working capital of $ 96.7 billion is greater than its current assets: ( B the! With equity increase dependence on long term financing the expected level of current assets refer to the: difference... Deducting current liabilities ( D ) Fluctuating working capital from the following calculate. 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First three months seasonal fluxes fixed at any rate Show how long-term financing policy affects financing... Liabilities are reported at 32,50,000 answer: calculate maximum permissible bank finance as per first method of Tandon norms! Purchases = 4,20,000 an aggressive policy produces from the following data: ( ). Insufficient working capital of $ 96.7 billion sales for the year is O A Sold Creditors Bifis... Suppliers and customers a firm's permanent working capital refers to the working capital, on the other hand, the.: the size of fixed assets to proprietors fund = 1.25, Net working capital management refers to the A.... Are cash sales converted into ready cash without affecting its market price loans! In mergers or very fast-paced companies, agreements can be considered the firm & # x27 ; s working... Project with low internal rate of Gross profit for export sale has to be taken 10 % an... Are $ 72,842.96 information given below calculate the amount utilized at the time financial information is accumulated, can.