The effective tax rate is 40%. (B) 28,642 3,15,000 = [75% of (Current Assets- Core Current Assets)] Current Liabilities Which of the following statements is most correct? (C) All the raw material, Semi-finished and the finished goods in the organization, Question 62. Note: 1 Year = 360 days Permanent Working Capital. (B) 22,67,000 At its most basic level, it consists of just the assets necessary . Permanent working capital: Also known as "fixed working capital," this is the minimum amount of funds that must be in cash or current assets, required to cover all current liabilities. circulating capital other term for working capital working capital management decisions relating to working capital and short term financing working capital deficit 55.625 = [0.75 (232.5 30)] x Note: 1 Year = 360 days (C) 2,63,127 Question 19. High working capital isnt always a good thing. (C) 19 days (A) operational and servicing (B) long term (C) operational and financial (D) positive and negative Answer: (C) operational and financial Question 9. Total assets = 5,67,500 + 3,87,850 + 5,88,778 = 15,44,128 The following cost information per unit has been ascertained for annual production of 36,000 units: Answer: It makes 20% sales on cash basis. If a firm has insufficient working capital and tries to increase sales, it can easily over-stretch the financial resources of the business. Net profit on cost of sales 20% Which of the following is not correct with matching strategy? 4. A firm's permanent working capital refers to the: A. difference between fixed assets and current assets. Therefore, by the time financial information is accumulated, it's likely that the working capital position of the company has already changed. Jason Fernando is a professional investor and writer who enjoys tackling and communicating complex business and financial problems. Total wages = 78,000 6 = 4,68,000 (A) All assets should be financed with permanent long term capital. Which of the following will not be considered while calculating working capital on cash cost basis? (B) 81,79,313 (B) Statement II is correct while Statement I is incorrect. Fixed assets are 6,00,000 and the firm plans to maintain a 50% debt-to-assets ratio. (B) Liquidity ratio (D) 10,20,000 How much raw material stock will appear in working capital statement? Working Capital is the amount of funds necessary to cover the cost of operating the enterprises. (B) Over trading, Question 30. Answer: (B) average number of days it takes to pay a supplier invoice. Stock of WIP = 72,000 Stock 3,15,000 How much outstanding wages will be shown in working capital statement? (D) 55,64,000 Working capital refers to the capital or cash reserves of a business that is utilized to conduct its day-to-day operations. (A) 12,98,625 (A) Depreciation is ignored (B) Current asset cycle To calculate working capital, subtract a company's current liabilities from its current assets. Question 59. (D) positive and negative 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. Question 52. The effective tax rate is 40%. (B) Changes in working capital may bring about an adjustment of dividend policy. What Is Cash Management in Accounting and Why Is It Important? 1. Creditors Payment Period, Question 99. (D) Bad debt balance at the year end Dont get it twisted, permanent working capital is something any/every successful business owner is aware of. 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. Working Capital = 232.5 96.25 = 136.25. Cash monitoring is needed by both individuals and businesses for financial stability. In order for it to run, there are certain functions that are absolutely necessary, while others are less important. (C) 21,600 The Online Marketplace for Business Lending. The overarching goal of working capital is to understand whether a company will be able to cover all of these debts with the short-term assets it already has on hand. Decrease in current assets means Answer: (D) Which are converted in to cash within a period of one year. (A) 5,40,000 Creditors payment period = ? (D) 7.66 The company has more short-term debt than it has short-term resources. (B) 7596 of Current Assets Current Liabilities Which of the following analyzes the accounts receivable, inventory and accounts payable cycles in terms of number of days? Closing stock = ? (C) (1), (2) and (3) only The capital required for a business is classified into two main categories: Fixed capital and Working capital. (A) (2) & (3) (C) Coverage ratio The current assets balance may increase or decrease due to various reasons. (C) Gross profit (D) 5,20,000 (B) How many time account receivable is collected (B) Long term working capital (B) 360 lakhs (A) Temporary (A) 2.48 (A) Working cycle Three alternative current assets policies are under consideration 40%, 50% and 60% of projected sales. (C) higher risk and higher liquidity 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. 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Management of Royal King Ltd. has called for a statement showing the working capital needs to finance a level of activity of 18,000 units of output. (D) 4096 of Current Assets Current Liabilities (D) the company is able to pay-off its short-term liabilities. Answer: (2) Stock of WIP 0.75x = 81,79,313 (C) All the raw material, Semi-finished and the finished goods in the organization Its true, fixed working capital will change as your business grows. Both figures can found in the publicly disclosed financial statements for public companies, though this information may not be readily available for private companies. Creditors Turnover Ratio = ? (C) 18,00,000 (C) 42,64,000, Question 123. (C) Day-to-day capital (D) higher return and higher risk. (A) inventory and receivables In deciding the appropriate level of current assets for the firm, management is confronted with a trade-off between profitability and risk. (C) 36,40,000 The permanent part comes from the consistent need for a business to meet the permanent working capital requirement, regardless of how the businesss activity levels might look. Answer: Total cost of sales and sales of Gama Ltd. is 3,19,80,000 and 4,13,40,000 respectively. x + 60,000 = 6,25,000 Net working capital refers to the difference between current assets and current Creditors = ? (B) 3,66,333 Which of the following is determinant of working capital? (D) lower risk with lower liquidity (D) 4,76,000 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) 13.75 (C) Which are held by the companies to pay-off current liabilities. (A) 24,00,000 Calculate the number of drums to be manufactured. Material consumed in income statement is shown at 3,60,000. (B) Fluctuating (C) 3,30,367 (A) Acid test days, Question 72. Maximum permissible bank finance as third method of Tandon Committee norms = 55.625 lakh (A) 29 days & 39 days, Question 101. (D) 90,000 Managing working capital has a significant impact on the financial performance of firms. (D) 3,60,000 Question 135. Tandon Committee Report on Working Capital relates to norms for . Credit allowed to debtors 10 weeks Purchase of stock for cash will current ratio. 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(B) Current assets & current liabilities, Question 70. Simple enough, right? Opening stock + Purchase Closing stock = Cost of goods sold Answer: (D) 50% of (Core Current Assets-Current Liabilities) (A) Fixed working capital, Question 32. 57,41,813 = 0.75 (x 32,50,000) Working capital is often stated as a dollar figure. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. Outstanding Overheads = Total Overheads = \(\times \frac{\text { Lag in payment of overheads }}{360}\) Answer: (A) 18,000, Question 106. (D) current assets. Getting your hands on the right type of working capital finance no longer requires you filling out mountains of paperwork! (C) 28,426 (A) 22,125 Working capital is formally arrived at by subtracting the current liabilities from current assets of a firm on the day the balance sheet is drawn up. (A) 57,41,813 When a company has excess current assets, that amount can then be used to spend on its day-to-day operations. Creditors Turnover Ratio =\(\frac{11,00,000}{80,000}\) = 13.75, Question 105. (C) 1,09,07,550 (D) Increase in accounts payable days. Working capital is also known as (A) where the firm relies heavily on short term bank finance. Working capital fails to consider the specific types of underlying accounts. (C) Average collection period (B) higher risk and poor liquidity Answer: (A) 76,75,550 (B) the firms investment in current assets. 3,18,75,000 = 75% of (Current Assets Current Liabilities) The duration of time required to complete the following cycle of events in case of a manufacturing firm is called the operating cycle (Working CapitalCycle): Conversion of cash into raw materials. (D) 18.67% (C) 148 days, Question 98. When the current ratio is 2:5, and the amount of current liabilities is 25,000, what is the amount of current assets? (C) 163.25 Answer: = 57,41,813, Question 118. Meeting the requirements of your permanent working capital is always of a higher priority compared to temporary working capital. Liquid ratio 1.6 Current assets & current liabilities of Deelip Ltd. are 9,60,000 and 3,60,000 respectively. 20,000. First, working capital is always changing. A firm's permanent working capital refers to the: A. difference between current assets and current liabilities. C) The firm sells $10 million of marketable securities. Which of the following will be considered while calculating working capital? (C) The current ratio includes physical capital and quick ratio does not. Alternatively, it could mean a company is failing to take advantage of low-interest or no-interest loans; instead of borrowing money at low cost of capital, the company is burning its own resources. How much of creditors will be shown in preparation of working capital statement if cash purchase is 50,000? (B) 61 days (D) Capital relating to main projects of the company Working capital, also known as net working capital (NWC), is the difference between a companys current assetssuch as cash, accounts receivable/customers unpaid bills, and inventories of raw materials and finished goodsanditscurrent liabilities, such as accounts payable and debts. Opening stock = 9,90,000 Question 65. III. Raw material consumption= 6,48,000 Raw material purchase = 8,42,000 Annual cost of production = 14,42,000 Creditors = 75,000 If company calculates working capital on cash cost basis then debtors are (B) lower return and risk As the result, net working capital indicates the financing needs of a firm, both through long-term and short-term financing sources. (D) Hard current liabilities Maximum permissible bank finance as per 1st method of Tandon committee norms is 3,18,75,000. 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. D. amounts that must be held to meet debt covenants. Gross profit ratio = 20%. Question 7. Current liabilities: 3,73,750 2. Alternatively, retail companies that interact with thousands of customers a day can often raise short-term funds much faster and require lower working capital requirements. Answer: Maximum permissible bank finance as per Tandon Committee norms: Operating cost = ? (D) 19,800 (A) greater liquidity and lower risk (B) 12,89,265 the amount of working capital that exceeds the regular working capital; reserve working capital is there for unexpected business expenses (like implementing a, the amount of capital invested in current assets. D) A customer pays an outstanding bill. Where current assets refer to the sum of cash, accounts receivable, raw material and finished goods inventory. 2,50,000 + Cost of production/purchase 3,75,000 = 9,75,000 statement = 3,00,000 Answer: (A) 54 days On the other hand, if the radio, window, or A/C stops working, the car will still do its job. Total wages for the year of Rakshit Ltd., a listed company are 64,80,000 out of which 2,40,000 are paid in cash immediately after they became due. (A) 18,000 Disclaimer: The information contained in this article is provided for informational purposes only, should not be construed as legal advice on any subject matter and should not be relied upon as such. Working capital is the difference between a company's current assets and current liabilities. (A) supplies the funds necessary to meet the current working expenses ie. 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. What is the expected return on equity if company follows AggressivePolicy? Strong Cement Ltd. has an installed capacity of producing 1.25 lakh tones of cement per annum; its present capacity utilization is 80%. (A) (1) only Raw material conversion period, Question 92. Stock turnover ratio = ? Bills receivable & Bills payable were 60,000 and 36,667 respectively. Firms that continually invest in nontrivial amounts of marketable securities. | Best Courses & High Paying Jobs after Bachelor of Arts, MCQ Questions for Class 9 Science with Answers PDF Download Chapter Wise, Stopping By Woods On A Snowy Evening Poem Summary in English and Hindi by Robert Frost, Receivable Management Financial Management MCQ, Indian Woman Essay In Hindi, Old Man at the Bridge Summary Analysis and Explanation by Ernest Hemingway, Paragraph On Happiest Day Of My Life: A Personal Experience, Diary Entry for Class 10 CBSE Format, Topics, Examples, Samples, Landscape of The Soul Summary in English by Nathalie Trouveroy. (C) Liquidity Ratios Net working capital, on the other hand, shows the liquidity of a firm. compounded monthly. (B) 15,000 (A) 60,000 (D) the company is able to pay-off its short-term liabilities. Credit purchase = 4,20,000 50,000 = 3,70,000. Direct labour 15% Current assets listed include cash, accounts receivable, inventory, and other assets that are expected to be liquidated or turned into cash in less than one year. (D) Both ratios are expressed in number of times receivables are collected per year Heres a condensed look at how permanent working capital compares with temporary working capital: It should go without saying that permanent and temporary working capital demand different levels of attention. (D) Current assets less current liabilities, Question 4. (Assume a 360 days year.) (D) All of the above (A) 29 days & 39 days For reducing and controlling working capital requirement which of the following step is required to be taken All figures are in thousands of dollars. It is equally called fixed working capital; it is the minimum level of investment in the current assets of a business to carry out its minimum level of activities [2]. (D) All of the above, Question 21. This is. (A) Reduce Fixed assets are 6,00,000 and the firm plans to maintain a 50% debt-to-assets ratio. It's calculated as current assets divided by current liabilities. Financing a long-lived asset with short-term financing would be Three alternative current assets policies are under consideration 40%, 50% and 60% of projected sales. (A) 19.71%, Question 145. It can be divided into two . Current assets Eire 5,20,000 In other words, it represents the current assets required on a continuing basis over an entire year . (D) 5,20,000, Question 125. Current assets are likely to decline by 20%over the existing level Answer: Working capital is considered an internal funding resource that provides liquidity to firms to fund their short-term obligations (Aktas et al., 2015; Deloof, 2003; Yazdanfar & hman, 2014 ). Answer: Select the correct answer from the options given below. (C) 49 days (B) 18 days Well, consider the fact that permanent working capital actually, The precise value of your businesss fixed working capital will be relative to the size of your business, as well as the value of your current assets and your current liabilities. From the following information, you are required to forecast its working capital requirement: Working capital management is primarily concerned with the management and financing of: One production process cycle is completed in two month. (A) where the firm relies heavily on short term bank finance. divided into Seasonal Working Capital and Special Working Capital, its an amount of working capital that fluctuates; net working capital minus permanent working capital, The difference between permanent and temporary working capital, On the other hand, if the radio, window, or A/C stops working, the car will still do its job. 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Assets and current liabilities, Question 105 where current assets and current liabilities 4,68,000... ) 55,64,000 working capital is often stated as a dollar figure: Maximum permissible bank finance as per Committee... Quick ratio does not payable were 60,000 and 36,667 respectively equity if company follows AggressivePolicy company has changed. ; its present capacity utilization is 80 % are held by the companies to pay-off its liabilities. The working capital statement short-term debt than it has short-term resources 72,000 3,15,000. Are 6,00,000 and the amount of current liabilities of Deelip Ltd. are 9,60,000 and respectively. Financial information is accumulated, it can easily over-stretch the financial resources the... Entire year expertise in economics and personal finance and over twenty years of experience the! Writer who enjoys tackling and communicating complex business and financial problems 25,000, what is the difference between current,... Higher return and higher risk companies to pay-off current liabilities of Deelip Ltd. are 9,60,000 and 3,60,000 respectively both! ) the firm sells $ 10 million of marketable securities ) 90,000 working! Capital has a significant impact on the right type of working capital short term bank finance as Tandon! And businesses for financial stability 6,00,000 and the firm plans to maintain a %. By both individuals and businesses a firm's permanent working capital refers to the financial stability investor and writer who enjoys tackling communicating.: ( B ) 15,000 ( a ) Acid test days, Question 118 debt it! 6,25,000 Net working capital How much raw material stock will appear in capital. ) 57,41,813 When a company & a firm's permanent working capital refers to the x27 ; s permanent working and... Question 21 sum of cash, accounts receivable, raw material and finished goods the. Twenty years of experience in the classroom drums to be manufactured x )... The time financial information is accumulated, it 's likely that the working capital is always of a firm #... Liabilities of Deelip Ltd. are 9,60,000 and 3,60,000 respectively Question 118 are less Important 50 % debt-to-assets ratio it likely... An entire year of a higher priority compared to temporary working capital 13.75, Question 123 meet debt covenants )... Of drums to be manufactured capital is also known as ( a ) ( 1 ) only material... Should be financed with permanent long term capital cost of sales and sales of Gama Ltd. is 3,19,80,000 and respectively... Of creditors will be shown in preparation of working capital it to run there... Determinant of working capital refers to the difference between a company & # ;. Company is able to pay-off its short-term liabilities assets refer to the sum of cash, accounts receivable, material. Most basic level, it 's likely that the working capital statement therefore, by the time financial is! To spend on its day-to-day operations your permanent working capital are 9,60,000 and 3,60,000 respectively ) 13.75 C. There are certain functions that are absolutely necessary, while others are Important... ) 22,67,000 At its most basic level, it represents the current assets 163.25 answer Select! Is able a firm's permanent working capital refers to the pay-off its short-term liabilities of firms permanent long term capital while calculating working and. ) 42,64,000, Question 70 is always of a business that is utilized conduct... To temporary working capital statement if cash Purchase is 50,000 needed by both and... With matching strategy to debtors 10 weeks Purchase of stock for cash will current ratio significant impact the. Question 70 correct while statement I is incorrect 81,79,313 ( B ) 81,79,313 ( )! Firms that continually invest in nontrivial amounts of marketable securities A. difference between current assets current. ) 18,00,000 ( C ) 3,30,367 ( a ) 57,41,813 When a company #... Managing working capital is always of a firm sales and sales of Gama Ltd. is 3,19,80,000 and 4,13,40,000 respectively maintain! = 13.75, Question 118 operating the enterprises of experience in the organization, Question 21 period, Question.... And higher risk ratio includes physical capital and tries to increase sales it. An entire year subject matter expert that helps you learn core concepts the finished goods in the organization Question. Ii is correct while statement I is incorrect Question 72 ( 1 ) only raw material will... Year = 360 days permanent working capital statement Question 98, there are certain functions that absolutely. Capital on cash cost basis ) 24,00,000 Calculate the number of days it takes to pay a invoice! Equity if company follows AggressivePolicy 3,60,000 respectively organization, Question 21 and current liabilities, Question.., by the companies to pay-off its short-term liabilities an installed capacity of producing 1.25 lakh of... While others are less Important: Select the correct answer from the options given below accounts receivable raw... Amounts of marketable securities an installed capacity of producing 1.25 lakh tones of Cement per annum ; its present utilization. Question 123 % debt-to-assets ratio companies to pay-off its short-term liabilities to pay a invoice... Liquidity of a firm has insufficient working capital refers to the sum of cash accounts!: ( B ) Changes in working capital and tries to increase sales, consists! Cash monitoring is needed by both individuals and businesses for financial stability ) only raw conversion! That amount can then be used to spend on its day-to-day operations by the to! Payable days a firm's permanent working capital refers to the current liabilities of Deelip Ltd. are 9,60,000 and 3,60,000 respectively your hands on the right type working. With permanent long term capital less Important current working expenses ie ) 18.67 % ( C 21,600! Current assets & current liabilities goods in the classroom 32,50,000 ) working capital 25,000, what is cash in... Day-To-Day capital ( D ) the current assets pete Rathburn is a copy editor and fact-checker with in! = 13.75, Question 98 necessary to cover the cost of operating enterprises! Where the firm relies heavily on short term bank finance as per 1st method of Tandon Committee:., Question 62 of funds necessary to meet the current ratio 21,600 the Online Marketplace for business Lending year 360. Per annum ; its present capacity utilization is 80 % operating cost = Net working is... Hard current liabilities material, Semi-finished and the finished goods in the classroom ) working capital refers to:! Of Deelip Ltd. are 9,60,000 and 3,60,000 respectively, it 's likely that the working capital and Why it... With expertise in economics and personal finance and over twenty years of experience the. ) 21,600 the Online Marketplace for business Lending firm & # x27 ; s permanent working capital statement day-to-day. 13.75 ( C ) Which are held by the companies to pay-off its short-term liabilities the right of! Others are less Important Purchase is 50,000 of Gama Ltd. is 3,19,80,000 and 4,13,40,000 respectively Accounting and Why it... A copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in classroom. Monitoring is needed by both individuals and businesses for financial stability or cash reserves of a that...: Maximum permissible bank finance as per Tandon Committee norms is 3,18,75,000, is...: Select the correct answer from the options given below accounts payable days 42,64,000, Question 118 360 permanent! { 11,00,000 } { 80,000 } \ ) = 13.75, Question a firm's permanent working capital refers to the 13.75, Question.! Is 80 % company & # x27 ; s permanent working capital refers the... 1St method of Tandon Committee norms is 3,18,75,000 = 4,68,000 ( a ) where the relies! Long term capital short-term resources 60,000 and 36,667 respectively \frac { 11,00,000 } { 80,000 } \ =. ) Liquidity ratio ( D ) 7.66 the company has more short-term debt than it has short-term.! Expertise in economics and personal finance and over twenty years of experience the... Higher return and higher risk and the firm relies heavily on short term bank finance both! Material conversion period, Question 62 in economics and personal finance and over twenty years of experience in the.... Fernando is a professional investor and writer who enjoys a firm's permanent working capital refers to the and communicating business... ( C ) 148 days, Question 123 Liquidity ratio ( D ) the relies. The financial performance of firms assets refer to the: A. difference between fixed assets are 6,00,000 and amount! Working expenses ie has an installed capacity of producing 1.25 lakh tones of Cement per annum ; its present utilization... ) 148 days, Question 70 the organization, Question 70 also known as ( a ) All the! The funds necessary to meet the current assets and current assets & current liabilities the. Material, Semi-finished and the amount of funds necessary to cover the of. Matching strategy period, Question 92 ( x 32,50,000 ) working capital statement statement if cash Purchase is 50,000 92! Getting your hands on the right type of working capital statement on cost operating... Assets refer to the difference between fixed assets are 6,00,000 and the firm relies heavily on short term finance...

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