working capital 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. D) firm uses no equity in its capital structure. Working Capital 1,200 1,000 200, Question 129. 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. Any amount over and above the permanent level of working capital is known as working capital. (C) 65 days (D) 2.5 (two and half) Working Capital refers to the amount of money a firm needs daily. (D) 4,51,370 (B) Working capital increases as compared to last year Opening and closing stock of SVK Ltd. is 1,20,000 & 1,80,000 respectively. Following is the balance sheet of PBX Ltd. Assume the level of Core Current Assets to be 60 lakhs. (B) 37,80,000, Question 117. 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. (A) 1.25 In other words, it represents the current assets required on a continuing basis over an entire year . Working capital is a highly effective barometer of a companys efficiency and effectiveness. Question 45. Wages & overheads are paid in the next month of accrual. Therefore, it is clear from the above explanation that Option A, Option C, and Option D are not accurate, and hence, Option B is the most suitable choice. (B) Current ratio, Question 79. (D) current assets. (B) higher return and risk. 1 year = 365 days Therefore, the company would be able to pay every single current debt twice and still have money left over. K Ltd. had sales last year of 26,50,000, including cash sales of 2,50,000. (A) 29 days & 39 days, Question 101. (D) 70 days A firm's permanent working capital refers to the: Portion of net working capital that is financed from long-term sources What happens to a firms whose uses of cash exceed its sources of cash during an accounting period? Current Ratio = 2.4 (D) None of these Answer: III. The major raw material to manufacture cement is limestone which is obtained on cash basis from a company located near the plant. (A) 1,09,05,750 (D) no risk at all with low liquidity 9,90,000 + x 10,10,000 = 20,00,000 Well, consider the fact that permanent working capital actually isnt permanent! Which of the following is correct formula to calculate WIP Conversion Period? (B) Operating capital (A) 14,00,000 Inventory is listed as a part of current assets. x Purchase = 20,20,000 (D) 7.66 (D) 120 days Gross working capital refers to the firm's investment in 'total current assets' needed to operate over a normal business cycle. For 3rd & 4th week: in the next week. Three alternative current assets policies are under consideration 40%, 50% and 60% of projected sales. (B) 61 days, Question 124. (D) 16,66,667. (B) Current Liabilities (C) Stock, Question 76. . Note: 1 Year = 360 days (A) That the Capital Employed has reduced (D) Receivables and payables A firm's permanent working capital refers to the: Multiple Choice difference between fixed assets and current assets. 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. (A) the firm may not be able to its long term finance Fixed overheads are 1 per unit at current level of activity i..e. 36,000 packets. II. Its current liability are 1,60,000 which includes provision for tax 60,000. 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. Question 58. 2. (B) 23,40,000 Working capital, also called net working capital, represents the difference between a companyscurrent assetsand current liabilities. (A) How often account receivable received The effective tax rate is 40%. (C) 3.68 (A) 60,000 (B) 69,65,625 Three alternative current assets policies are under consideration 40%, 50% and 60% of projected sales. Thus, wages are paid 3rd & 5th week which shows that lag in payment of wages is 2 week. The interest rate is 10% on all debts. (A) Holding period A) firm uses no debt in its capital structure. If current assets are 1,09,05,750 and current liabilities are 32,50,000 then maximum permissible bank finance as per first method of Tandon Committee norms is (C) Average collection period (B) Prepaid expenses (A) 80 days, Question 114. (A) Acid test days, Question 72. compounded quarterly. Current Ratio vs. Quick Ratio: What's the Difference? Cost of production/purchase = 11,00,000 Current liabilities = ? (C) is the amount of current assets required to meet a firms long-term minimum needs. (D) 9,58,750 Answer: The main reason for the difference is that e-commerce businesses typically have lower overhead costs compared to a traditional brick-and-mortar store. (A) 5,40,000 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. (B) Aggressive current assets policy 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. (B) Deducted from gross working capital Question 50. (A) lower return and risk. Calculate the debtors on cash cost basis form the following information for working capital purpose: (A) Hard current assets (A) Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs. Current liabilities: 3,73,750 (B) the firms investment in current assets. x = Net working capital = 72,65,625, Question 143. (D) Variable working capital (C) 16.50% (D) Company has no working capital Question and Answer forum for K12 Students. (B) 24,00,000, Question 128. (A) Leverage ratio (B) 94 days (A) 136.25 (B) 157 days 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 ). Raw material conversion period is 36 days. Answer: (B), Question 66. (C) Making greater use of short term finance and minimizing net short term asset. Answer: Current liabilities are 1,00,000 (C) Cost of Goods Sold Creditors payment period 60 days (D) includes accounts payable. (B) 24.00% | 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. (A) Bills receivable D) firm uses no equity in its capital structure. (C) 4,87,500, Question 142. (C) 16.50%, Question 146. (A) 34 days (D) Business cycle (B) [75% of (Core Current Assets Current Assets)] Current Liabilities (B) Quick ratio No. Total assets = 5,67,500 + 3,87,850 + 5,88,778 = 15,44,128 1,20,000 + Purchases 1,80,000 = 3,60.000 (B) 24.00% (C) Current asset cycle Current liabilities = 5,88,778 2,88,778 = 3,00,000 $720.000 O c. $1,030,000 OD. Stock = ? Lending Express is excited to announce a new partnership with Seek Business Capital. Answer: 5. (B) Net working capital (D) Activity Ratios Raw materials 30% Question 10. (B) 20,652 Question 9. Working capital = 11,70,000 + 9,58150 + 26,65,000 + 55,12,000 + 6,00,000 17,55,000 14,95,000 = 76,55,750. fixed overheads will remain same i..e. 36,000. The company produces cement in200 kg drum. C. (B) Which are less important from production angle. All figures are in thousands of dollars. A firm's permanent working capital refers to the: A. (B) Cost of Production Both figures can found in the publicly disclosed financial statements for public companies, though this information may not be readily available for private companies. 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. Creditors payment period, Question 108. (2) Manufacturing cycle (B) Conservative Approach. What can be considered the firm's permanent working capital. (C) Operating cycle, Question 13. (B) average number of days it takes to pay a supplier invoice. 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. In addition to using different accounts in its formula, it reports the relationship as a percentage as opposed to a dollar amount. Therefore, companies that are using working capital inefficiently or needing extra capital upfront can boost cash flow by squeezing suppliers and customers. Method 1: 75% of (Current Assets Current Liabilities) (B) seeks to increase dependence on long term financing. (A) 4,81,250 (A) Reserve Working Capital (D) 12,98,265 Current Ratio = ? . (D) 14.44 (C) Debtors All of the following statements are true regarding ratios that measure a companys ability to pay current liabilities except (D) represents the amount utilized at the time of contingencies. Answer: (D) Gross margin working capital Raw materials are in stock on average two month and Materials are in process, on average half month. (C) 32,308 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. ; Philippens H.M.M.G. Current liabilities 34,62,500 If a firm has insufficient working capital and tries to increase sales, it can easily over-stretch the financial resources of the business. The effective tax rate is 40%. Total sales of OLX Ltd. are 31,248 out of which 25% are cash sales. (D) 4,60,000 1 Sources of permanent working capital are the following a Owners funds are the. Credit allowed by creditors 4 weeks Explain the important ratio that would be used in following situation: Cost structure per unit: 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. If you. 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. (D) 28,462 (A) Depleting its inventories Answer: (C) 75,65,750 (C) receivable, gross profit and inventory Current assets are those assets Capital which is needed to meet the seasonal requirements of the business (C) 80,000 drums (D) All of the above (C) Liquid assets less current liabilities (B) 4,00,000 Opening stock + Purchase Closing stock = Cost of goods sold Answer: Another way to review this example is by comparing working capital to current assets or current liabilities. (C) negligible risk (B) How many time account receivable is collected Working Capita] = CA CL Question 3. Credit Sales = 24,00,000 (A) Factory Cost Working capital estimates are derived from the array of assets and liabilities on a corporatebalance sheet. Working Capital Management Explained: How It Works, Current Ratio Explained With Formula and Examples. (C) is required at the time of the commencement of business x = Annual Cost of Production 14,60,000, Question 96. (C) 10,000, Question 122. To quote Filion (2021): "The term 'entrepreneur' is a French word derived from the verb 'entreprendre', which means to do or to undertake. (B) 15,000, Question 107. (C) 18,00,000 (B) Cash sales, Question 74. (D) 22,000 A company can also improve working capital by reducing its short-term debts. Which of the following is not correct with matching strategy? The company is therefore said to have $70,000 of working capital. A company has prepared its annual budget, relevant details of which are reproduced below: Answer: A similar financial metric called the quick ratio measures a ratio of current assets to current liabilities. Answer: Answer: 2.4 = \(\frac{x}{y}\) Answer: (B) 49,29,313 (A) Statement I is correct while Statement II is incorrect. (C) Stock (A) Matching/hedging Approach Current assets & current liabilities of Deelip Ltd. are 9,60,000 and 3,60,000 respectively. (A) Gross Working Capital In mergers or very fast-paced companies, agreements can be missed or invoices can be processed incorrectly. But, the need for your business to meet the demands of permanent working capital is something that wont change. 57,41,813 = 0.75x 24,37,500 (A) the amount utilized at the time of contingencies. Assertion (A): Working capital refers to the gross working capital and represents the amount of funds invested in current assets. Answer: (D) None of the above Which of the following is/are method of maximum permissible bank finance as recommended by the Tandon Committee? If current assets increases by 20% and current liabilities decreases by 20% as compared to last year figures then (C) lower return but very high risk. Working capital in this case is (B) 32,500 The management is of the opinion to make 12% margin for contingencies on computed figure. The net effect of these transactions. (C) 52,29,813 Question 36. Answer: 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. (B) long term Answer: (A) All assets should be financed with permanent long term capital. (A) an example of moderate risk-moderate (potential) profitability asset financing. Rate of gross profit for export sale has to be taken 10%. 20,000. The following information is available for your calculation. x + 60,000 = 6,25,000 (B) 49,29,313 Answer: (A) Collection period+Inventory holding period Creditor Payment Period, Question 71. Question 65. (B) 81,79,313 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. 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. The current ratio is a liquidity ratio that measures a companys ability to cover its short-term obligations with its current assets. D. amounts that must be held to meet debt covenants. It might even go bankrupt. (C) 163.25 (A) Short term bills receivables (C) 4,00,000 (A) Differential working capital \(2.8=\frac{28,00,000}{x}\) (D) 1,05,09,750 (B) Sales. come in many different shapes with varying rates, but finding the right one for your businesss needs doesnt need to waste your time or energy. Bills payable = 25,000 Creditors Payment Period = ? (B) 2,36,712 2,80,000 = 2.4y y (C) Current assets capital is revolutionizing the business lending process, making it faster and easier than ever to get matched with the optimal lender. Current liabilities include accounts payable, wages, taxes payable, and the current portion of long-term debt thats due within one year. Answer: (B) 4,00,000 (D) Neither (A) nor (B) 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: Finished goods stock and WIP stock will appear in balance sheet and working capital of the company at For purposes of WCM, 'working capital' refers to the difference between current assets and current . Answer: What relationship exists between the average collection period and accounts receivable turnover? Working Capital Leverage. (B) 99 days 90,000 the Average Collection Period will be? Assume 1 year = 52 weeks. (D) All of the above (A) Temporary Other details are as follows: Answer: D) $390,000 Workings Permanent working capital refers to the base working capital, which is the minimum level of working capital that is carried by the entity at all times to car, Q1 Q2 Q3 Q4 Minimum Cash Balance $300 $300 $300 $300 Accounts Receivable 80 640 360 100 Inventory 1060 420 60 440 Accounts Payable (330) (330) (330) The data above shows the networking capital requirements for Flinder's Camping, a company that makes tents. By reducing its short-term debts copy editor and fact-checker with expertise in economics and finance. Liabilities of Deelip Ltd. are 9,60,000 and 3,60,000 respectively assets & current liabilities Deelip... X = Annual Cost of production 14,60,000, Question 96 thats due a firm's permanent working capital refers to the one year include accounts,! And represents the current portion of long-term debt thats due within one year 40 %: ( A Holding. 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