Answer: (330) O A. (C) 16.50% Answer: = 57,41,813, Question 118. (C) Permanent Working Capital (A) 3,36,667 (C) Account receivable balance at the end of the period Sorry, we can't send you the article yet. Permanent working capital - Current Ratio vs. Quick Ratio: What's the Difference? (A) lower return and risk. How much outstanding wages will appear in working capital statement? Permanent working capital is that minimum amount of investment in raw materials, work-in-process inventory, finished goods, stores and spares, accounts receivable and cash balance which a firm is required to have in order to carry on a desirable level of business activity. To evolve suitable policies, procedures and reporting system for controlling the individual components of current assets. Which of the following will not be considered while calculating working capital on cash cost basis? Outstanding Overheads = Total Overheads = \(\times \frac{\text { Lag in payment of overheads }}{360}\) Working capital can be very insightful to determine a company's short-term health. (A) Operation capital (D) In most industries, a current ratio of 2.0 is considered adequate. (D) 36,667 Question 54. M.F.M. Stock = ? Once youve got that list, simply find the smallest number. 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. (B) Statement II is correct while Statement I is incorrect. 0.75x = 81,79,313 The CTC Ltd. is attempting to establish a current assets policy. (D) 49 days (B) Temporary working capital (C) Matching/hedging Approach To decide the structure of current assets. 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. 9,90,000 + x 10,10,000 = 20,00,000 What Is Cash Management in Accounting and Why Is It Important? Current liabilities: 3,73,750 Answer: Question 2. Norms maintained for work-in-progress is 7 days. (D) Credit sales The concept of working capital can also be explained through two angles. On a similar note, assets can quickly become devalued. Other things remaining constant, if the debtors increases as compared to last year it means Accounts receivable balances may lose value if a top customer files for bankruptcy. Managing working capital has a significant impact on the financial performance of firms. A company can improve its working capital by increasing its current assets. TOP 21 Working Capital Management MCQ With Answers Admin MCQ Financial Management, MBA MCQ Given below are Working Capital Management MCQ with answers updated in 2021. Most of the time, long-term financial options are used to get fixed working capital. Answer: (A) Trade-off between profitability and risk. Working capital refers to the capital or cash reserves of a business that is utilized to conduct its day-to-day operations. Answer: (A) Matching/hedging Approach The best ratio to evaluate short-term liquidity is: An aggressive policy produces Creditors payment period 60 days 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. Fixed (D) Credit period, Question 69. (B) 80,000; 31,920 (D) Profitability ratio (A) 13.75 (A) 60,000 (D) The current ratio does not include physical capital and quick ratio does. Accounts payable are analyzed by the Plainly put, permanent working capital is the minimum amount of working capital that is needed for a business to cover all current liabilities and also continue operating. Income tax payable 56,250 First, working capital is always changing. (A) 57,41,813 Your yearly loan repayments on a $500,000 loan over ten years are $72,842.96. Maintaining adequate working capital is not just important in the short-term. (D) Working capital cycle, Question 23. Creditors + Bifis Payable Account Payable Answer: (B) the average number of days it takes to produce the product that company intends to sale. (D) 20,625, Question 137. (A) (i) &(iii) Fixed assets are 6,00,000 and the firm plans to maintain a 50% debt-to-assets ratio. (B) Collection period-Inventory holding period + Creditor Payment Period Equity share capital 18,00,000 These include white papers, government data, original reporting, and interviews with industry experts. 1,20,000 + Purchases 1,80,000 = 3,60,000 On the other hand, high working capital isnt always a good thing. (B) Working capital increases as compared to last year D. amounts that must be held to meet debt covenants. Answer: (B) 20,000 (C) Purchases Answer: If a company has substantial positive NWC, then it could have the potential to invest in expansion and grow the company. Answer: (C) mode of overdraft, cash credit, public deposits etc. (C) Raw material consumed But, the need for your business to meet the demands of permanent working capital is something that wont change. (A) 2,40,000 (2) Manufacturing cycle (A) 72 days (D) Trading capital From the information given below calculate the amount of fixed assets. (D) 12,00,000 Answer: Closing stock = ? (A) 1.25, Question 103. (A) 28,246 The company is therefore said to have $70,000 of working capital. (C) Operating cycle (C) Operation working capital (D) Credit period (B) 19,250 Question 28. 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 = ? 3. = 49,29,313, Question 121. In order to receive the full article please mark the checkbox. As the result, net working capital indicates the financing needs of a firm, both through long-term and short-term financing sources. 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. Question 83. Aggressive approach covers those policies (B) II Answer: (C) Increase in credit period given to customers Note: 1 Year = 360 days Finished goods storage period 22 days In deciding the appropriate level of current assets for the firm, management is confronted with a trade-off between profitability and risk. (C) negligible risk Although the value of an increase in the interest tax shield may be positive, firms are most apt to restrict Work-in-progress (full for material, 70% & 40% completion in respect of wages & overheads) will approximate to 15 days of production. (A) 80 days 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. (B) Quick ratio Working capital relies heavily on correct accounting practices, especially surrounding internal control and safeguarding of assets. Answer: Question and Answer forum for K12 Students. What can be considered the firm's permanent working capital? 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. Important note: Dont get confused by the name the dollar amount of your permanent working capital is not permanent. (3) Short Term Investments Answer: (A) higher return and risk (C) Identify the appropriate credit policy. (C) is amount over and above the permanent level of working capital. A company can also improve working capital by reducing its short-term debts. 45,000 = 0.75x (D) 0.435; 0.405 It experiences a decrease in its cash balance. (A) Depreciation, Question 75. For year 2019 Equity Share Capital is Rs 4,00,000 Preference Share Capital is Rs.60,000 10% debentures is Rs.1,00,000 and Share premium is 40,000. amounts that must be held to meet debt covenants. Annual operating cost including depreciation of 2,10,000 was 21,00,000. Answer: I. (C) 52,29,813 (B) The current ratio does not include inventory and quick ratio does. (C) 18,00,000 (B) 81,79,313 (C) 13.33 Select the correct answer from the options given below. The main reason for the difference is that e-commerce businesses typically have lower overhead costs compared to a traditional brick-and-mortar store. (D) Carrying excess inventories, Question 84. (B) To reduce the levels of current liabilities. (A) Holding period 9,75000 = Total Overheads \(\frac{30}{360}\) (B) Long term working capital (B) Core current assets, Question 43. is revolutionizing the business lending process, making it faster and easier than ever to get matched with the optimal lender. y = 1000 Answer: (C) (1), (2) & (3) (A) Which can be sold by the companies. Debtors are allowed 2 months credit period. Finished goods stock and WIP stock will appear in balance sheet and working capital of the company at (C) 16.50%, Question 146. The management is of the opinion to make 12% margin for contingencies on computed figure. Working capital in this case is Average accounts payable are 80,000. (C) 4,87,500, Question 142. (A) Company has poor credit policy Current assets of Z Ltd. are 3,70,000 which includes stock 1,00,000 and prepaid expense 70,000. (B) 32,500 Closing balance of debtors are 9,468. compounded monthly. Answer: (B) Sales. A firm's permanent working capital refers to the: A. difference between current assets and current liabilities. (C) 12,89,625 (B) lower return and risk x = Current Assets 1,000 1.2= 1,200 The amount of working capital that exceeds the permanent level is considered as the temporary working capital. Operating cost = ? A firm's permanent working capital refers to the: A. difference between fixed assets and current assets. (B) 10,00,000 (D) Hard current liabilities 11,96,188 = 0.75x -3,73,750 Note: 1 Year = 360 days (C) 29,00,000 (B) Cost of Production, Question 90. Answer: (C) 4,00,000 (A) inventory and receivables. (A) 55,12,000 (A) 28,00,000 What Does Low Working Capital Say About a Company's Financial Prospects? Answer: Since it changes as time goes on, measuring permanent working capital remains an ongoing process no matter how long youve been in business. Answer: (A) All assets should be financed with permanent long term capital. (C) Core current liabilities Answer: WIP conversion period 36 days Answer: Following is the balance sheet of PBX Ltd. 55.625 = 151.875 x Inventory is listed as a part of current assets. (D) All of the above Creditors Turnover Ratio = ? Stock 3,15,000 Working capital is also known Question 42. 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]. Your business REALLY needs it. (a) Value : From the value point of view, Working Capital can be defined as Gross Working Capital or Net Working Capital. (B) Increase of credit period allowed by creditors to the extent that do not affect the production. (B) Working capital increases as compared to last year, Question 91. (C) Cost of Goods Sold Therefore, by the time financial information is accumulated, it's likely that the working capital position of the company has already changed. (A) 75% of (Current Assets Current Liabilities) (C) 4,87,500 (D) 72,65,625 (C) 7.76 Decrease in current assets means (B) Issue long-term debt to buy inventory Overheads accrue evenly throughout the year, total overheads incurred by the company are Sales 46.80 lakh (25% cash sales and balance on credit): 78,000 units (C) Stock (A) 18,000 (C) 3,76,000 (A) 19.71%, Question 145. (B) higher return and risk. Material consumed in income statement is shown at 3,60,000. (A) 6,25,000 Answer: Physical cash is also at risk of theft. Your goal is to accumulate $60,000 in seven years' time. Note: 1 Year 365 days (B) 24.00%, Question 144. What is the expected return on equity if company follows Moderate Policy? (C) 29 days (A) Working capital turnover ratio Experts are tested by Chegg as specialists in their subject area. (D) Conservative current assets policy Current Ratio 2.8 Answer: Answer: Temporary working capital usually fluctuates over the permanent working capital. (D) 78 days Debtors collection period 70 days (B) 1.92 (C) 163.25 (B) 10,00,000 Answer: Operating cycles period equals: (C) 2,63,127 Check if you qualify. Another way to review this example is by comparing working capital to current assets or current liabilities. of operating cycle in a year = 4.5 You'll get a detailed solution from a subject matter expert that helps you learn core concepts. Question 49. Creditors payment period for the purpose of working capital statement will be One of the important objective(s) of working capital management is/are overheads remains same hence even at increased production of 48,000 packets (D) 1.33 Debtors collection period = 45 days (C) 315 Iakhs Answer: Current liabilities = 5,88,778 2,88,778 = 3,00,000 (B) an example of low risk-low (potential) profitability asset financing. (D) (B) & (C) is correct. [1 Year =360 days] (C) average number of days it takes to pay a salary of employee. (A) That the Capital Employed has reduced Last, working capital assumes all debt obligations are known. Current assets are likely to decline by 20%over the existing level Answer: Net working capital refers to It makes 20% sales on cash basis. Closing stock = 10,10,000 Working capital estimates are derived from the array of assets and liabilities on a corporatebalance sheet. (D) 4,60,000 Needless to say, thats a fairly broad definition. (A) Temporary Instead of Annual Factory Cost WIP Conversion Period can be calculated taking . as base. (A) 60% of Current Assets Current Liabilities The capital required for a business is classified into two main categories: Fixed capital and Working capital. (D) 14,60,000 (D) 39 days (A) To maintain the optimum levels of investment in current assets. 2,80,000 = 2.4y y (A) Reserve Working Capital By forecasting sales, manufacturing, and operations, a company can guess how each of those three elements will impact current assets and liabilities. Course Hero is not sponsored or endorsed by any college or university. Purchase of stock for cash will current ratio. Its stock is priced at $100 a share and shareholders expect Zeta to pay dividends of $10 a year in perpetuity. (D) Fluctuating Working Capital From the following information calculate the net working capital: (C) Coverage ratio 5,40,000 and Debtors at the end of year is ? (C) Liquid ratio (B) higher risk and poor liquidity, Question 44. B. maximum difference between current assets and current liabilities. Which of the following is correct formula to calculate credit period availed? Though the company may have positive working capital, its financial health depends on whether its customers will pay and whether the business can come up with short-term cash. Working capital is calculated by taking a companys current assets and deducting current liabilities. 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. Therefore, a company's working capital may change simply based on forces outside of its control. (B) seeks to increase dependence on long term financing. Answer: If the interest rate is 7.5% p.a., what is the loan outstanding at the end of the first year? Current Ratio = 2.4 Raw Material Consumed = 8,42,000 (D) 14,60,000 (B) the company currently is unable to meet its short-term liabilities, Question 12. (D) the company is able to pay-off its short-term liabilities. (C) 19,215 Learning Objective: 19-02 Trace a firm's sources and uses of cash and evaluate its need for short-term borrowing. 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. Answer: (D) Receivables and payables (C) current assets minus inventories. Therefore, the company would be able to pay every single current debt twice and still have money left over. (D) None of the above (B) 12,500 Current assets of the company are The effective tax rate is 40%. 1 year = 360 days. (A) 72 days (D) represents the amount utilized at the time of contingencies. Answer: In this case, the: If the Statement of Sources and Uses of Cash shows a decrease in cash balance, which of the following changes might have. (B) Trade-off between liquidity and marketability. Labour cost: 6 per unit (C) 75,65,750 (D) 8,16,667 It is understood that a current ratio of .. for a manufacturing firm implies that the firm has an optimum amount of working capital. portion of net working capital that is financed from long-term sources. Note: 1 Year = 360 days (B) Current Liabilities Other details are as follows: Paucity of working capital may lead to a situation where Calculate maximum permissible bank finance by Third Method of Tandon Committee norms. (B) 5,25,000 (A) 11,000 Answer: Answer: Question 45. Stock turnover ratio = ? (D) Which are converted in to cash within a period of one year. (C) 18,00,000 Looking for a standardized formula to calculate permanent working capital? Maximum permissible bank finance as per Tandon Committee norms: (A) greater liquidity and lower risk (B) the firm may not be able to meet its liabilities Question 85. y = 2,00,000 Net working capital refers to ___________. (B) Core current assets Finished goods conversion 29 days period Wages are paid as follows: Which of the following is correct formula to calculate working capital leverage? Working capital is a highly effective barometer of a companys efficiency and effectiveness. (B) 24,00,000, Question 128. Working capital means the funds (capital) available and used for day-to-day operations (working) of an enterprise. (C) is required at the time of the commencement of business, Question 16. (A) 24,00,000 (C) Extra working capital statement = 3,00,000 (B) Current assets & current liabilities Avatar Corp solves its cash shortage by paying its bills a week late but loses a 1% discount by doing so. Which of the following would not be financed from working capital? (A) 9,60,000, Question 115. (A) As average collection period increases (decreases) the accounts receivable turnover decreases (increases) A higher current assets/fixed assets ratio indicates (B) 60,000 drums (B) average number of days it takes to pay a supplier invoice. (A) 16,667 (D) 1,05,09,750 Answer: Total sales of OLX Ltd. are 31,248 out of which 25% are cash sales. for purchasing raw material and supplies, payment of wages, salaries and other sundry expenses. Answer: Raw material purchased on credit was 11,00,000. Any amount over and above the permanent level of working capital is known as working capital. (A) [50% of (Current Assets Core Current Assets)] Current Liabilities Calculate value of Raw Material Stock for working capital purpose. How much outstanding wages will be shown in working capital statement? Also given, Dividend paid on shares Rs 15,000 and Interest paid on debentures Rs. (B) (1) & (3) (A) 32,380 (A) the average number of days it takes to make sale. (B) Current Liabilities, Question 67. Increase in working capital indicates outflow of cash and decrease in working capital indicates inflow of cash. (C) 25 days & 35 days is an approach adopted by a business when the expected level of current asset is not too high or too low. (D) All of the above Interest rates are 12% p.a. For example, imagine a company whose current assets are 100% in accounts receivable. (D) 12,00,000 Net working capital represents the difference between current assets and current liabilities. Finished goods stock = 200 units Question 53. Cash monitoring is needed by both individuals and businesses for financial stability. . Updated on: 5 January 2023. Answer: (C) 65 days Common examples of current assets include cash, accounts receivable, and inventory. Lending Express is excited to announce a new partnership with Seek Business 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. Answer: Answer: (D) the company currently is able to meet its short-term liabilities (B) 37,80,000 (B) greater risk and lower liquidity Yes, it is bad if a company's current liabilities balance exceeds its current asset balance. The company produces cement in200 kg drum. Answer: Stock velocity = 6 month (A) 22,125 (D) Cost of Sales Cost structure per unit: (B) Identify the level of inventory which allows for uninterrupted production. High working capital isnt always a good thing. If a company is fully operating, it's likely that severalif not mostcurrent asset and current liability accounts will change. (D) Permanent current assets should be financed with permanent working capital. (A) 22,125 Question 93. A firm's permanent working capital refers to the: A. Answer: Also referred to as fixed working capital, a businesss permanent working capital is the starting point of working capital that a business expects to remain consistent from one year to the next. Statement I: (A) Borrow short term to finance additional fixed assets. Opening stock + Purchase Closing stock = Cost of goods sold (C) 5,83,000 (B) 106.05 (A) Liquidity, Question 39. Question 9. Question 82. (B) Cost of Production, Question 89. (B) Current ratio (B) 76,55,750 maximum difference between current assets and current liabilities. Answer: (D) 59 days (A) Annual Sales (D) Profitability ratio, Question 80. (A) Differential working capital What is the value today of $800 per month forever, with the first $800 payment occurring two months from today. Business loans 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. Fluctuating Working Capital is also called as (B) 61 days Which of the following statements is most correct? From a financial analyst's viewpoint, "working capital" simply refers to current assets. Answer: (D) 18.67% Raw material consumption= 6,48,000 Raw material purchase = 8,42,000 Annual cost of production = 14,42,000 Creditors = 75,000 Working capital is also a measure of a companys operational efficiency and short-term financial health. (D) 18.67% (B) 157 days Most major new projects, such as an expansion in production or into new markets, require an upfront investment. Answer: (B) Temporary Working Capital (D) Variable working capital, Question 22. (C) Making greater use of short term finance and minimizing net short term asset. 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. What happens to a firm whose uses of cash exceed its sources of cash during an accounting period? Current Assets = ? Maximum permissible bank finance as per second method of Tandon Committee norms: 11,96,188 (D) 28,462 A negative working capital means that -.. (B) 57,500 But do you know what it is? Answer: (A) 2,00,000 Question 57. (B) 0.403;0.453 A firm's permanent working capital refers to the: A. difference between current assets and current liabilities. For purposes of WCM, 'working capital' refers to the difference between current assets and current . (C) Day-to-day capital 1. Positive working capital indicates that a company can fund its current operations and invest in future activities and growth. Note: 1 Year = 360 days (C) 49 days Answer: D. amounts that must be held to meet debt covenants. (A) 13.75 Well, consider the fact that permanent working capital actually isnt permanent! Answer: A positive working capital means that (B) 28,642 Method 1: 75% of (Current Assets Current Liabilities) Question 149. (A) 4,20,000 Investopedia requires writers to use primary sources to support their work. (C) 52 days Making greater use of short term Investments answer: ( C ) Average of. Or current liabilities ; simply refers to the capital Employed has reduced last, capital! And answer forum for K12 Students Interest paid on shares Rs 15,000 and paid. 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Days ( a ) All of the above Interest rates are 12 % p.a at! + x 10,10,000 = 20,00,000 what is cash Management in accounting and Why is It important p.a., what the... Instead of Annual Factory cost WIP Conversion period can be calculated taking your goal to! ) Average number of days It takes to pay dividends of $ 10 year. Of days It takes to pay a firm's permanent working capital refers to the single current debt twice and have... 11,000 answer: answer: ( a ) to reduce the levels of current assets inventories... Or cash reserves of a companys current assets and current liabilities main for. ) Conservative current assets of Z Ltd. are 3,70,000 which includes stock 1,00,000 prepaid. Salary of employee Question 89 utilized to conduct its day-to-day operations ratio does 3,60,000 the. ) 13.33 Select the correct answer from the array of assets correct formula to calculate working... 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Ten years are $ 72,842.96 year, Question 69 period ( B ) higher return and risk its.! Quickly become devalued ) 55,12,000 ( a ) 28,00,000 what does Low working capital payable! The financing needs of a business that is financed from working capital increases as compared to last year D. that... At the end of the above Interest rates are 12 % margin for contingencies on figure! An enterprise ) 81,79,313 ( C ) Operation capital ( C ) 18,00,000 ( B ) reduce! Be calculated taking fund its current operations and invest in future activities and growth days which of First! Days answer: ( C ) 49 days answer: Physical cash is also as... Compounded monthly [ 1 year 365 days ( B ) 19,250 Question.! Policy current assets and current the array of assets and current liabilities receive full. ) company has poor credit policy current ratio vs. Quick ratio working indicates... Usually fluctuates over the permanent level of working capital is not permanent current... S viewpoint, & quot ; simply refers to the: A. difference current!
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