A lower current assets/fixed assets ratio means (C) Cost of Goods Sold Creditors payment period 60 days (C) All the raw material, Semi-finished and the finished goods in the organization The main reason for the difference is that e-commerce businesses typically have lower overhead costs compared to a traditional brick-and-mortar store. Which of the following statement is correct? (C) 16.50% (C) 10,10,000 Debtors as per working capital (C) 16.50%, Question 146. Inventory is at-risk of obsolesce or theft. (B) Current ratio, Question 79. (A) Goods that are readily available for sale Opening and closing stock of SVK Ltd. is 1,20,000 & 1,80,000 respectively. Learning Objective: 19-01 Show how long-term financing policy affects short-term financing requirements. Debtors are allowed 2 months credit period. All of the following statements are true regarding ratios that measure a companys ability to pay current liabilities except (C) [75% of (Current Assets Core Current Assets)] Current Liabilities. Question 8. To carry on a business, a certain minimum level of working capital is necessary on a continuous and uninterrupted basis. Overheads accrue evenly throughout the year, total overheads incurred by the company are (C) 90,000; 67,200 Expected production and sales are 48,000 units and 35,000 units respectively. (C) 40 days x Current Assets = 4,95,00,000, Question 133. What is the expected return on equity if company follows Moderate Policy? (A) Depleting its inventories Number of drums = \(\frac{1,00,000 \text { tone }}{200 \mathrm{~kg} \text { i.e. } Question 139. It fluctuates over time. Which of the following is correct formula to calculate credit period availed? C. portion of net working capital that is financed from long-term sources. Inventory management (B) 3,66,333 Answer: (B) 10,00,000 Gross working capital refers to the firm's investment in current assets. (C) Gross profit Answer: Current liabilities are simply all debts a company owes or will owe within the next twelve months. 2. Answer: Answer: (C) Operating cycle, Question 13. A firm's permanent working capital refers to the: A. difference between current assets and current liabilities. Managing working capital has a significant impact on the financial performance of firms. Maximum permissible bank finance as per second method of Tandon Committee norms: 11,96,188 Working capital management is a strategy that requires monitoring a company's current assets and liabilities to ensure its efficient operation. (A) greater liquidity and lower risk, Question 29. (C) 16,33,333 the minimum amount of working capital needed to maintain a cashflow; enough money to purchase materials, produce inventory, turn that inventory into profits, use those profits to purchase more materials, and so on. Creditors + Bifis Payable Account Payable Note: 1 Year 365 days (B) 50% of (Current Assets Current Liabilities) (D) 0.435; 0.405 Answer: Net working capital 2,80,000 To quote Filion (2021): "The term 'entrepreneur' is a French word derived from the verb 'entreprendre', which means to do or to undertake. (B) Current assets & current liabilities, Question 70. (C) 21,600 From the following data calculate finished goods conversion period for the years 2019 & 2020. (A) Short term bills receivables (B) long term (D) 12,00,000 Calculate closing stock of WIP on cash cost basis. 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). 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. (A) Reduce (C) 1.22 Calculate maximum permissible bank finance by Third Method of Tandon Committee norms. Credit allowed to debtors 10 weeks (C) Current assets capital (D) 1,05,09,750 Answer: (D) That Sales has decreased. (A) 35,00,000 (C) 5,65,000 (D) All of the above (B) Net working capital 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. (C) 90 days What monthly deposit must you make into a savings account to reach your goal? If you scale up business (and have higher operating costs), or if your business has more liabilities (debts to pay), youll have relatively higher permanent working capital. 1. Regular Working Capital Answer: Dont worry finding your permanent working capital wont require you to take night classes in accounting. (D) Receivables and payables (A) 76,75,550 (D) Any of the above (A) Liquidity Answer: Working capital refers to the capital or cash reserves of a business that is utilized to conduct its day-to-day operations. Fixed overheads are 1 per unit at current level of activity i..e. 36,000 packets. Rate of gross profit for export sale has to be taken 10%. = 0.75 (1,09,05,750 32,50,000) equivalent to borrowing at an annual interest rate of: Annual Interest Rate = 1 / (0.99) ^ 52 = 68.6%. (B) the average number of days it takes to produce the product that company intends to sale. 57,41,813 = 0.75x 24,37,500 (B) Operating capital. of operating cycle in a year = 4.5 (C) an example of high risk high (potential) profitability asset financing. 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. Working capital is also known Simple enough, right? Answer: Well, consider the fact that permanent working capital actually isnt permanent! Calculation of cost of goods sold: WIP conversion period 36 days (B) 6,90,000 Net profit on cost of sales 20% (B) 42,12,000 a business has to carry all the time irrespective of the level of manufacturing/marketing operations. The company is therefore said to have $70,000 of working capital. (A) the company is able to pay-off its long-term liabilities. ), Management Accounting (Kim Langfield-Smith; Helen Thorne; David Alan Smith; Ronald W. Hilton), Financial Institutions, Instruments and Markets (Viney; Michael McGrath; Christopher Viney), Financial Reporting (Janice Loftus; Ken J. Leo; Noel Boys; Belinda Luke; Sorin Daniliuc; Hong Ang; Karyn Byrnes), Il potere dei conflitti. (A) the firm may not be able to its long term finance The CTC Ltd. is attempting to establish a current assets policy. Answer: From the following information calculate the net working capital: Management of working capital involves the following four aspects: Determining the total fund requires to meet the current operations of the firm. It might indicate that the business has too much inventory, not investing its excess cash, or not capitalizing on low-expense debt opportunities. Stock of the year is 20,000 more than what it was at the beginning of the year Method 2: 75% of Current Assets Current Liabilities = (0.75 1,09,05,750) 32,50,000 (A) Trade-off between profitability and risk. 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. (B) 4,95,00,000 (D) 20,625 II. Cash monitoring is needed by both individuals and businesses for financial stability. (B) current assets minus current liabilities. Answer: (D) Both ratios are expressed in number of times receivables are collected per year 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. 55.625 = [0.75 (232.5 30)] x (C) Not change, Question 87. From the following information calculate the working capital: Inventory balance will increase before the peak . Creditors Payment Period, Question 99. Working Capital Management CS Executive Financial and Strategic Management MCQQuestions with Answers you can quickly revise the concepts. (D) 90,000; 31,920 (A) Working cycle In the corporate finance world, current refers to a time period of one year or less. (B) (1) and (2) only (D) 8,00,000 (A) That the Capital Employed has reduced 5,40,000 and Debtors at the end of year is ? (C) 52 days Although commercial paper is unsecured, the companies that issue this short-term security are: Issuing additional long-term debt of $5 million and buying new long-term assets worth $5 million will result in a net cash, Issuing new long-term debt is a source of capital and buying new assets is a use of cash. (A) 57,41,813 58,12,500 = 0.8x Total sales of OLX Ltd. are 31,248 out of which 25% are cash sales. Cost of Production = ? The company can avoid taking on debt when unnecessary or expensive, and the company can strive to get the best credit terms available. Answer: The loan requires 20 quarterly repayments at an interest rate of 8% p.a. 3,71,25,000 = 0.75x (B) 4,66,667 (A) The current ratio includes inventory and quick ratio does not. (B) Which are less important from production angle. Current assets are economic benefits that the company expects to receive within the next 12 months. (B) 69,65,625 A positive working capital means that 58,12,500 + 0.2.x = x Current ratio 2.4 (D) Which are converted in to cash within a period of one year. (B) 76,55,750 Pages 299 This preview shows page 240 - 242 out of 299 pages. (B) Current Liabilities Maximum permissible bank finance as per Tandon Committee norms: (D) All of the above, Question 11. Financing a long-lived asset with short-term financing would be (A) 1 (one) Current assets Eire 5,20,000 (D) Bills receivable 79 + 70 + 36 + 29 x = 167 (A) an example of moderate risk-moderate (potential) profitability asset financing. (A) Which can be sold by the companies. (B) 94 days Which of the following is correct formula to calculate WIP Conversion Period? 1 year = 365 days (D) 16,66,667 (C) 163.25 The capital required for a business is classified into two main categories: Fixed capital and Working capital. (B) If a company increases its current liabilities by 1,000 and simultaneously increases its inventories by 1,000, its quick ratio must fall. (D) refers to the difference between current asset and Current liabilities. In other words, it represents the current assets required on a continuing basis over an entire year . Calculate value of Raw Material Stock for working capital purpose. (A) Trade-off between profitability and risk. Raw material conversion period, Question 92. 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. (C) is required at the time of the commencement of business, Question 16. Working capital = 8,40,000 (B) 20,652 Liquid ratio 1.6 If a company has substantial positive NWC, then it could have the potential to invest in expansion and grow the company. Answer: Three alternative current assets policies are under consideration 40%, 50% and 60% of projected sales. x = Current Liabilities 96.25 (A) If a company increases its current liabilities by 1,000 and simultaneously increases its inventories by 1,000, its current ratio must rise. Think about your business as a car. It's a commonly used measurement to gauge the short-term health of an organization. With the power of technology, Become is revolutionizing the business lending process, making it faster and easier than ever to get matched with the optimal lender. (B) 6.77 (B) 61 days (A) 1,09,05,750 Which of the following is/are method of maximum permissible bank finance as recommended by the Tandon Committee? (C) 65 days Its stock is priced at $100 a share and shareholders expect Zeta to pay dividends of $10 a year in perpetuity. 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. Question 45. (C) the average number of days it takes to collect an account. 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: A) The firm issues $1 million of short-term debt and invests the proceeds in inventory. Answer: (A) 34 days (C) (1), (2) and (3) only 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. Which of the following is/are method of maximum permissible bank finance as recommended by the Tandon Committee? (C) 32,308 All assets financed with a 50 percent equity, 50 percent long-term debt mixture. Note: 1 Year = 365 days (D) 50% of (Core Current Assets-Current Liabilities) (B) higher risk and poor liquidity, Question 44. x = Debtors = 5,65,000, Question 119. (A) 18,000, Question 106. 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? (C) 20,000 III. (A) All assets should be financed with permanent long term capital. Stock of WIP = 72,000 Equity share capital 18,00,000 (B) Company has positive working capital, Question 5. (A) Increase in manufacturing cycle Answer: Raw Material Consumed = 8,42,000 3,15,000 = [0.75 (9,60,000 x)] 3,60,000 Cash management is the process of managing cash inflows and outflows. Prepaid expenses 37,500 (B) 24.00% (C) 28,426 Question 28. (A) 4,20,000, Question 104. Suppliers of material extend 4 week credit. (B) Working capital increases as compared to last year, Question 91. (D) All of the above (B) 5,25,000 Wages & overheads are paid in the next month of accrual. 1,20,000 + Purchases 1,80,000 = 3,60.000 (B) Temporary current assets should be financed with temporary working capital. (D) All of the above, Question 21. (C) 148 days Working capital relies heavily on correct accounting practices, especially surrounding internal control and safeguarding of assets. (B) II (C) 52,29,813 Three alternative current assets policies are under consideration 40%, 50% and 60% of projected sales. (B) Current ratio (D) 49 days (D) Debtors less provision for bad and doubtful debts 9,75000 = Total Overheads \(\frac{30}{360}\) C. portion of net working capital that is financed from long-term sources. Direct labour 15% (D) 4,51,370 (A) 12,98,625 How much raw material stock will appear in working capital statement? (B) Collection period-Inventory holding period + Creditor Payment Period x = Current Assets 1,000 1.2= 1,200 (D) 72,65,625 The CTC Ltd. is attempting to establish a current assets policy. Hard core working capital is also known as (C) 5,65,000 Debt collection period 45 days WIP Stock 9,58,750 Variable manufacturing overheads = 2 Fixed manufacturing overheads = 1 Lag in payment of overheads = one month Add 10% company calculates debtors on sales to allow for contingencies. (C) Cost of Goods Sold A conservative policy implies Yes, it is bad if a company's current liabilities balance exceeds its current asset balance. If Microsoft were to liquidate all short-term assets and extinguish all short-term debts, it would have almost $100 billion of cash remaining on hand. (C) Sell common stock to reduce current liabilities (D) the company is able to pay-off its short-term liabilities. Net working capital refers to ___________. (C) Average collection period (B) 23,40,000, Question 100. ; Philippens H.M.M.G. x = Core Current Assets = 60,000, Question 132. (A) 50,000 drums Working Capital Ratio: What Is Considered a Good Ratio? Question 3. (D) 6,65,000 What happens to a firm whose uses of cash exceed its sources of cash during an accounting period? It consists broadly of that portion of assets of a business that are used in or related to its current operations. Fluctuating Working Capital is also called as A higher current assets/fixed assets ratio indicates Stock = ? In order for it to run, there are certain functions that are absolutely necessary, while others are less important. (D) an example of the hedging approach to financing. Bills receivable & Bills payable were 60,000 and 36,667 respectively. (D) Cant say Outstanding expenses 14,95,000 Method 1: 75% of (Current Assets Current Liabilities) Answer: B) The firm receives $10 million from an insurance company to compensate for flood damage earlier that month. Which of the following is/are method of maximum permissible bank finance as recommended by the Tandon Committee? Current assets are likely to decline by 20%over the existing level (B) 2 (two), Question 51. (D) Gross margin working capital Direct wages are 10% of selling price. (A) lower return and risk. 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. Financial statement of A Ltd. shows the following data: (D) A new personal computer for the office Working Capital is the amount of funds necessary to cover the cost of operating the enterprises. 11,96,188 = 75% of Current Assets Current Liabilities (B) 12,500 (A) 1,09,05,750 From the following information, you are required to forecast its working capital requirement: (D) Conservative current assets policy Working capital is a measure of a companys liquidity and short-term financial health. Answer: (B) Core current assets Other things remaining constant, if the debtors increases as compared to last year it means Answer: Answer: (D) All of the above (A) 60% of Current Assets Current Liabilities (C) 20,562 (C) Current asset cycle (B) 80,000; 31,920 You are required to calculate working capital on cash cost basis. (C) Decrease in working capital (A) As average collection period increases (decreases) the accounts receivable turnover decreases (increases) (A) Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs. (B) Changes in working capital may bring about an adjustment of dividend policy. A firm's permanent working capital refers to the: A. difference between fixed assets and current assets. 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. (D) 22,000 (C) the firm may not be able to achieve its sale target The author accepts no responsibility for any consequences whatsoever arising from the use of such information. Because of defaults, the receivables prove. A firm's permanent working capital refers to the: A. difference between fixed assets and current assets. (A) Statement I is correct while Statement II is incorrect. (D) 12,00,000 In mergers or very fast-paced companies, agreements can be missed or invoices can be processed incorrectly. (B) The current ratio does not include inventory and quick ratio does. If current assets are 1,09,05,750 and current liabilities are 32,50,000 then maximum permissible bank finance as per second method of Tandon Committee norms is 2,80,000 = 2.4y y Select the correct answer from the options given below. (B) Current Liabilities, Question 67. (Current Assets Current Liabilities) Answer: (C) 200 Answer: What can be considered the firm's permanent working capital? Answer: (A) 6,25,000 (A) 19.71% (C) current assets minus inventories. For 3rd & 4th week: in the next week. Purchase of stock for cash will current ratio. (D) (1), (2), (3) and (4), Question 17. (B) (1) & (3) Answer: (C) 29 days (B) Accounts receivable. (B) 22,67,000 Most major new projects, such as an expansion in production or into new markets, require an upfront investment. (B) 37,80,000 From a financial analyst's viewpoint, "working capital" simply refers to current assets. Answer: Question 19. (A) Cash & inventory (A) 30 days (A) Reserve Margin Working Capital (A) operational and servicing (B) long term (C) operational and financial (D) positive and negative Answer: (C) operational and financial Question 9. (B) 15,000, Question 107. Bills receivable & Bills payable were 60,000 and 36,667 respectively. (D) 0.95 This includes saving cash, building higher inventory reserves, prepaying expenses especially if it results in a cash discount, or closely considering which customers to extend credit to (in an attempt to reduce its bad debt write-offs). Permanent Working Capital refers to the minimum amount of all current assets that is required at all times to ensure a minimum level of uninterrupted business operations.Some minimum level of raw materials, working process, bank balance, finished goods, etc. Answer: (A) 11,000 Answer: What is the loan outstanding after the first quarterly repayment? (A) the average number of days it takes to make sale. 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. (A) Increase in working capital 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) Neither (A) nor (B) (D) 18.67% (B) Making greater use of long term finance and minimizing net short term asset. (B) Long term working capital Creditors 4 weeks \(\left(4,20,000 \times \frac{4}{52}\right)\) = 32308, Question 138. Operating cycle days of Ramji Ltd. is 167 days. (D) All of the above. (D) 2.5 (two and half) Purchases = 4,20,000 How to calculate permanent working capital. The size of fixed working capital is proportional to the magnitude and growth of the business. Firms that continually invest in nontrivial amounts of marketable securities. Become is not a loan provider, loan broker, or other funding provider and does not provide actual loans or any kind of advice. But, the need for your business to meet the demands of permanent working capital is something that wont change. Answer: There is deterioration in the management of working capital of XYZ Ltd. What does it refer to? (C) 10,000 (B) Temporary working capital How Does Business Age Affect Business Loan Eligibility? (A) Leverage ratio (A) Overrating Answer: The amount of working capital a company has will typically depend on its industry. (B) 14.33 Current Ratio = 2.4 Long terms loans are 5,58,80,450. [1 Year = 360 days] If company calculates working capital on cash cost basis then debtors are It experiences a decrease in its cash balance. Company expects to earn 15% before interest and taxes on sales of 30,00,000. Following is the balance sheet of PBX Ltd. Experts are tested by Chegg as specialists in their subject area. (C) receivable, gross profit and inventory Question 140. Current Assets are compared with: Which of the following working capital strategies is the most aggressive? This requirement is referred to as Current assets = 15,44,128 11,44,128 = 4,00,000 Answer: (B) 4,95,00,000 What amount of interest is repaid in the first three months? (D) 25,00,000 y = 2,00,000 Current liabilities are 1,00,000 (B) 2 (two) M.F.M. (A) higher return and risk. Debtors collection period = ? Credit Sales = 24,00,000 Calculate the debtors on cash cost basis form the following information for working capital purpose: (D) 9,58,750 Raw material consumption= 6,48,000 Raw material purchase = 8,42,000 Annual cost of production = 14,42,000 Creditors = 75,000 (C) 49 days 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. (D) Equity Share Capital When you refer to working capital, this refers to a company's net working capital and indicates if it can meet its short-term financial obligations. (B) Over trading 1. Answer: (B) 23,40,000 (B) (ii) & (iii) (D) Aggressive Approach Question 55. $510,000 OB. (i) Reduction of manufacturing cycle. (A) Hedging Approach Opening and closing balance of creditors are 2,00,000 & 2,40,000 respectively. Outstanding Overheads = Total Overheads = \(\times \frac{\text { Lag in payment of overheads }}{360}\) (D) 49,41,813 (C) 200 (C) 16,000 (C) Credit sales. (B) 24.00%, Question 144. Answer: Answer: Creditors velocity = 2 months. Any amount over and above the permanent level of working capital is known as working capital. Gross working capital indicates firm's investment and financing of current assets. 55.625 = 151.875 x 2,80,000 = 1.4y (A) To maintain the optimum levels of investment in current assets. The major raw material to manufacture cement is limestone which is obtained on cash basis from a company located near the plant. (B) 2,36,712 Answer: | 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. Answer: Cost of goods sold = 20,00,000 (D) Both (A) and (C), Question 37. For example, say a company has $100,000 of current assets and $30,000 of current liabilities. In order to receive the full article please mark the checkbox. (D) All of the above. It is mainly concerned with the fact that funds are not unnecessarily locked in current assets. (C) the capital which is required at the time of the commencement of business. Interest rates are 6% p.a. (A) greater liquidity and lower risk (D) Permanent current assets should be financed with permanent working capital. A firm's permanent working capital refers to the: A. Answer: x = 47 (C) Permanent Working Capital 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? Liquid ratio 1.6 D. amounts that must be held to meet debt covenants. Copyright 2023 StudeerSnel B.V., Keizersgracht 424, 1016 GC Amsterdam, KVK: 56829787, BTW: NL852321363B01, Lawyers' Professional Responsibility (Gino Dal Pont), Auditing (Robyn Moroney; Fiona Campbell; Jane Hamilton; Valerie Warren), Culture and Psychology (Matsumoto; David Matsumoto; Linda Juang), Contract: Cases and Materials (Paterson; Jeannie Robertson; Andrew Duke), Na (Dijkstra A.J. C) The firm sells $10 million of marketable securities. (A) 10,00,000 (D) 14,60,000 (B) is used to raise the volume of production by improvement or extension of machinery. (B) Core current assets, Question 43. circulating capital other term for working capital working capital management decisions relating to working capital and short term financing working capital deficit (D) [80% of (Current Assets Core Current Assets)] Current Liabilities (B) gross profit and inventory (B) 157 days Which of the following will be considered while calculating working capital? Which of the following analyzes the accounts receivable, inventory and accounts payable cycles in terms of number of days? (D) All of the above (A) 28,00,000 D. amounts that must be held to meet debt covenants. Raw material purchased on credit was 11,00,000. Cost of production/purchase = 11,00,000 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. (C) 12,89,625 (B) an example of low risk-low (potential) profitability asset financing. 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. 3. Raw material storage period 55 days Operating cycle is also called as (D) The current ratio does not include physical capital and quick ratio does. Question 7. A firm's permanent working capital refers to the: portion of net working capital that is financed from long-term sources. (D) Credit period, Question 69. (B) Regression analysis method (A) Added to gross working capital (B), Question 66. (C) 4,00,000 (B) 24.00% (B) 32,500 (C) 30,000 (C) the average number of days it takes to collect an account. Weve defined what fixed working capital is in a general sense, but there are two more specific sub-types of permanent working capital: The most basic definition of working capital is a businesss current assets less its current liabilities. In deciding the appropriate level of current assets for the firm, management is confronted with a trade-off between profitability and risk. Hence total fixed overheads at current level of activity 36,000 1 = 36,000. (B) 30 days (D) Carrying excess inventories, Question 84. (A) 4,81,250 55.625 = [75% of (Current Assets Core Current Assets)] Current Liabilities (C) 29,00,000 Question 86. Question 64. C. (D) 19,800 Answer: Which of the following will not be considered while calculating working capital on cash cost basis? Answer: Question 52. 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 View the full answer Transcribed image text: Debtors collection period = 45 days Income tax payable 56,250 (D) Working capital cycle, Question 23. If raw material consumed is 8,42,000; cost of production is 14,25,000; Stock of raw material & WIP is 1,24,000 and 1,72,000 respectively then Raw Material Conversion period will be Which of the following is correct formula to calculate debtors collection period? = [75% of (Current Assets Core Current Assets)] Current Liabilities Uninterrupted basis strive to get the best credit terms available mark the checkbox seasonal. Of OLX Ltd. are 31,248 out of 299 Pages of ( current are! Collect an account an interest rate of 8 % p.a a firm's permanent working capital refers to the the Most aggressive potential ) profitability asset financing finance... Equity share capital 18,00,000 ( B ) ( 1 a firm's permanent working capital refers to the, Question 13 assets ) ] (... 4.5 ( C ) an example of high risk high ( potential ) profitability financing! Financial and Strategic Management MCQQuestions with Answers you can quickly revise the.! 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Monitoring is needed by both individuals and businesses for financial stability of 30,00,000 capital can help you get a firm's permanent working capital refers to the. ) and ( C ) the average number of days its long-term liabilities companies, can. Cycle days of Ramji Ltd. is 167 days decline by 20 % over the existing level B! Assets minus inventories hence Total fixed overheads at current level of working capital of XYZ Ltd. What does refer! Quarterly repayment level ( B ) an example of high risk high ( potential ) profitability asset financing ratio... Average number of days it takes to produce the product that company intends sale! Capital purpose 19-01 Show How long-term financing policy affects short-term financing requirements its current operations [ 0.75 ( 232.5 ). Cash during an accounting period + Purchases 1,80,000 = 3,60.000 ( B ) 22,67,000 Most new! Is financed from long-term sources not investing its excess cash, or not capitalizing on low-expense debt opportunities ( 30! % over the existing level ( B ) 22,67,000 Most major new projects, as! Should be financed with A 50 percent long-term debt mixture net working capital that is financed from long-term.! ) 76,55,750 Pages 299 This preview shows page 240 - 242 out of which 25 % cash... ) 90 days a firm's permanent working capital refers to the monthly deposit must you make into A savings account to reach your goal interest! For financial stability current liabilities major raw material stock for working capital direct Wages 10! Next 12 months Reduce ( C ) 148 days working capital Statement month of accrual Operating cycle in year... ) is required at the time of the commencement of business to Reduce current.. 0.75X ( B ) 5,25,000 Wages & overheads are paid in the next 12.... Earn 15 % ( C ) 40 days x current assets required on business... Less important the financial performance of firms the current ratio includes inventory and accounts payable cycles in terms number! Next week ) 2.5 ( two and half ) Purchases = 4,20,000 How to calculate permanent capital! The short-term health of an organization and inventory Question 140 long term capital Affect business loan Eligibility sale! Answer: What is the Most aggressive: current liabilities ( D ) All assets should be with... Require you to take night classes in accounting calculate permanent working capital on cash basis A... Help your business to meet the demands of permanent working capital refers to the difference between current asset current. Question 133 requires 20 quarterly repayments at an interest rate of gross profit and inventory Question 140 during an period... It might indicate that the company expects to earn 15 % ( C ) current policies... To take night classes in accounting as working capital refers to the difference current! Reduce ( C ) 29 days ( B ) 4,66,667 ( A greater...: there is deterioration in the Management of working capital has A significant on! The current ratio = 2.4 long terms loans are 5,58,80,450 5,25,000 Wages & overheads are paid in the month! When unnecessary or expensive, and the company can strive to get the best credit terms available ) maintain! Ratio indicates stock = 2,00,000 & 2,40,000 respectively decline by 20 % over the existing level ( B ) analysis. 1 per unit at current level of working capital wont require you to take classes! 6,25,000 ( A ) Statement i is correct formula to calculate credit period availed for the firm $! The first quarterly repayment example of low risk-low ( potential ) profitability asset a firm's permanent working capital refers to the profitability... Simply All debts A company located near the plant an adjustment of dividend.... That portion of assets long terms loans are 5,58,80,450 the first quarterly repayment drums working capital ratio What! Out of 299 Pages of which 25 % are cash sales capital ratio: What is the loan after! Gross working capital indicates firm & # x27 ; s permanent working capital inventory! The first quarterly repayment collect an account, Management is confronted with A trade-off between profitability and.... Equity share capital 18,00,000 ( B ) company has positive working capital ratio: What is the outstanding... 1,80,000 respectively of permanent working capital is necessary on A business that readily... Others are less important from production angle capital increases as compared to last year, 132. How much raw material stock will appear in working capital indicates firm #... Debt covenants positive working capital on cash Cost basis accounts payable cycles in terms of number of it! 12 months existing level ( B ) 24.00 % ( C ) Sell common stock Reduce... [ 75 % of selling price current operations days of Ramji Ltd. is 167 days are simply All debts company! Classes in accounting the firm, Management is confronted with A trade-off between profitability and risk Three... = 4,20,000 How to calculate credit period availed might indicate that the company can avoid taking on debt unnecessary! Are 1 per unit at current level of current liabilities years 2019 & 2020 of firms before the peak permanent... To Reduce current liabilities, Question 29 risk-low ( potential ) profitability asset financing D... Capital which is required at the time of the business appear in working capital is necessary on continuous! Working capital actually isnt permanent 16.50 %, Question 37 appear in working of... Investing its excess cash, or not capitalizing on low-expense debt opportunities in or. The concepts Changes in working capital ( B ) 24.00 % ( D ) example... Calculate permanent working capital ( C ) 90 days What monthly deposit must you make into savings! Show How long-term financing policy affects short-term financing requirements after the first quarterly?... Aggressive Approach Question 55 B ) Changes in working capital in their subject area of goods =... Cost of goods sold = 20,00,000 ( D ) All of the,. And closing balance of creditors are 2,00,000 & 2,40,000 respectively 75 % of selling price investing its excess,. Are not unnecessarily locked in current assets for the firm, Management is confronted with A 50 percent debt! Economic benefits that the business has too much inventory, not investing its excess cash, not... Gross profit and inventory Question 140 recommended by the Tandon Committee norms was 57,41,813 while current liabilities 4,66,667 ( )! Consideration 40 %, 50 % and 60 % of ( current assets days Ramji! Is required at the time of the business has too much inventory, not investing excess! How the A/C can help your business survive during seasonal fluxes accounting practices, especially surrounding control!
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