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. Net Working Capital is the amount by which current assets exceed the current liabilities of a business. (A) Liquidity Inventory turnover ratio evaluates: No. If a company has substantial positive NWC, then it could have the potential to invest in expansion and grow the company. Working capital is a highly effective barometer of a companys efficiency and effectiveness. Statement I: (A) (i) &(iii) Raw material conversion period is 36 days. Which of the following method is not used for calculating working capital cycle? True or False, Splitterfield Foods forecasts the following sales and expenses: June July August Sales ($ millions) 120 150 160 Purchases of raw materials ($ millions) 70 80 85 Other expenses ($ millions) 30 38 40, Zeta Corp has 1,000 shares outstanding. Working capital is also known Reason (R): Current assets are those assets which in the ordinary course of business can be converted into cash within a short period of time. = 57,41,813, Question 118. Answer: Answer: Well explain. Finished goods conversion 29 days period (C) the capital which is required at the time of the commencement of business. (C) 80,000 drums Which of the following statements is most correct? Working Capital refers to the amount of money a firm needs daily. (3) Credit policy Answer: (A) Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs. How much raw material stock will appear in working capital statement? All of the following statements are true regarding ratios that measure a companys ability to pay current liabilities except Answer: (B) 10,00,000 (D) Any of the above Question 64. Current liabilities 34,62,500 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? Thus, wages are paid 3rd & 5th week which shows that lag in payment of wages is 2 week. (C) Inventory and prepaid expense are included in the numerator of the current ratio, but not in the numerator of the acid-test ratio. x Purchase = 20,20,000 (D) Credit sales One of the important objective(s) of working capital management is/are (D) 3,00,000 Now the president suddenly announces that it, Kappa Corp and Lambda Corp are identical except that Kappa pays a dividend of $5 per share, while Lambda pays no dividend and uses the cash to repurchase stock. | 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) Working cycle Answer: (A) supplies the funds necessary to meet the current working expenses ie. 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. Quick Ratio =1.0 compounded monthly. (A) Making greater use of short term finance and maximizing net short term asset. (C) 25 days & 35 days Opening stock 1,75,000, Total purchase 10,75,000 including cash purchase 1,75,000, total sales 15,00,000 out of which 20% are on cash basis. (A) As average collection period increases (decreases) the accounts receivable turnover decreases (increases). (D) 90,000 (A) Working capital decreases as compared to last year (B) lower return and risk (D) Without figures it is impossible to tell whether working capital will increase or decrease (D) 1,05,09,750 (A) 28,00,000 (A) Depreciation Answer: (D) Stock The company can be mindful of spending both externally to vendors and internally with what staff they have on hand. Opening and closing stock of SVK Ltd. is 1,20,000 & 1,80,000 respectively. (C) Trade-off between equity and debt. (B) Working capital increases as compared to last year Debtors collection period 70 days (C) operational and financial. Inventory is listed as a part of current assets. The company is therefore said to have $70,000 of working capital. (D) In most industries, a current ratio of 2.0 is considered adequate. Question 10. (D) All of the above Note: 1 Year = 360 days (A) 29 days & 39 days, Question 101. Maximum permissible bank finance as per first method = 75% of Suppliers of material extend 4 week credit. Conversion of raw materials into work in process. (C) 4,80,000 (A) Collection period+Inventory holding period Creditor Payment Period, Question 71. Answer: Current assets are economic benefits that the company expects to receive within the next 12 months. D. amounts that must be held to meet debt covenants. 5,40,000 and Debtors at the end of year is ? Answer: Direct wages are 10% of selling price. Fuel, intact tires, and oil are all required. (B) 23,40,000, Question 100. Question 52. (D) 77,55,650 PWC(permanent working capital) implies a WCs part where a minimum amount of CA is needed(locked up) so that the firm or company can run its business operations smoothly for a year and is computed by the minimum difference between CA and CL. (C) That debtors collection period has increased, Question 68. (C) Stock Contingencies are .. I. Company expects to earn 15% before interest and taxes on sales of 30,00,000. x = Creditors = 3,00,000, Question 120. You borrow $200,000. (B) Temporary Working Capital (C) Liquid ratio (A) 47 days portion of net working capital that is financed from long-term sources. 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. Opening and closing stock of SVK Ltd. is 1,20,000 & 1,80,000 respectively. Answer: However, there are some downsides to the calculation that make the metric sometimes misleading. Working capital is often stated as a dollar figure. Question 81. The effective tax rate is 40%. (B) 4,59,370 Credit purchase = 4,20,000 50,000 = 3,70,000. 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). 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. (A) Liquidity, Question 39. (A) 2,00,000 (B) 76,55,750 Answer: (D) 90,000; 31,920, Question 130. Answer: The company can avoid taking on debt when unnecessary or expensive, and the company can strive to get the best credit terms available. Variable manufacturing overheads = 2 Fixed manufacturing overheads = 1 Lag in payment of overheads = one month Answer: (A) greater liquidity and lower risk (C) 10,10,000, Question 116. Answer: Accounts payable are analyzed by the Creditors 4 weeks \(\left(4,20,000 \times \frac{4}{52}\right)\) = 32308, Question 138. (B) Work-in-progress capital Question 18. (C) Making greater use of short term finance and minimizing net short term asset. (D) Goods that can be sold within a short span of time Debtors + Bills Receivable = Account Receivable Answer: (B) Business cycle What relationship exists between the average collection period and accounts receivable turnover? (B) 1.92 Answer: (B) the firm may not be able to meet its liabilities, Question 48. (D) All of the above. (A) total assets minus fixed assets. The amount of working capital that exceeds the permanent level is considered as the temporary working capital. In Current Ratio. Following is the balance sheet of PBX Ltd. (B) 4,00,000 Gross profit ratio = 20%. To be clear, that number will change as your company grows and as your assets and liabilities change. (B) 4,00,000 For reducing and controlling working capital requirement which of the following step is required to be taken (A) 19.71% (D) 18.67% (B) 20,000 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 = ? Answer: S Ltd. gives the following information: (C) (i) & (ii) (B) 6.77 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. Select the correct answer from the options (B) 2,80,000 What can be considered the firm's permanent working capital? (A) Increase in working capital (C) higher risk and higher liquidity (B) Operating capital. (C) Accounts payable days (D) the company currently is able to meet its short-term liabilities (D) 25,00,000 (B) 37,80,000, Question 117. 1 year = 360 days. Answer: y = 1000 (C) 148 days (A) Temporary Well, consider the fact that permanent working capital actually isnt permanent! Lag in payment g of overheads is 30 days. All assets financed with a 50 percent equity, 50 percent long-term debt mixture. (D) Bills receivable (B) 69,65,625 (A) 28,750 (D) 18.67% (D) Cant say Norms maintained for work-in-progress is 7 days. maximum difference between current assets and current liabilities. The major raw material to manufacture cement is limestone which is obtained on cash basis from a company located near the plant. Raw materials 30% Cash management Instead of Annual Factory Cost WIP Conversion Period can be calculated taking . as base. (A) Gross Working Capital 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]. (B) Aggressive current assets policy Raw Material Consumed = 8,42,000 (D) 36,667 (A) inventory and receivables. Paucity of working capital may lead to a situation where (B) the company currently is unable to meet its short-term liabilities, Question 12. (C) Identify the appropriate credit policy. (B) Non-cash items are not considered 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. Sales = 25,00,000 Current liabilities = ? (B) the firms investment in current assets. (A) Borrow short term to finance additional fixed assets. (C) That debtors collection period has increased Working Capita] = CA CL Direct expenses 5% (D) All of the above (A) That the Capital Employed has reduced (B) 49,29,313 for purchasing raw material and supplies, payment of wages, salaries and other sundry expenses. x = Current Assets = 20,93,250 Credit allowed by creditors 4 weeks (D) 4.43 month 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) All of the above. (D) (1), (2), (3) and (4), Question 17. (D) 16,66,667 (D) Variable working capital Getting your hands on the right type of working capital finance no longer requires you filling out mountains of paperwork! 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