(D) 18.67% Become provides you with easy online application services to access loans from third party lenders. You are required to calculate working capital on cash cost basis. x = 47 (C) Stock No. (D) All of the above. Finished goods stock = 200 units Receivable management In deciding the appropriate level of current assets for the firm, management is confronted with a trade-off between profitability and risk. It fluctuates over time. Gross working capital refers to the firm's investment in current assets. (C) is required at the time of the commencement of business, Question 16. Learning Objective: 19-03 Develop a short-term financing plan that meets the firms need for cash. (C) Sell common stock to reduce current liabilities However, there are some downsides to the calculation that make the metric sometimes misleading. Answer: (B) average number of days it takes to pay a supplier invoice. C. Net working capital refers to Avatar Corp solves its cash shortage by paying its bills a week late but loses a 1% discount by doing so. (A) Overrating Side note: If you see your working capital finance is starting to take a dip, consider taking a permanent working capital loan. Stock velocity = 6 month Answer: You can learn more about the standards we follow in producing accurate, unbiased content in our. Question 135. (D) refers to the difference between current asset and Current liabilities. (A) 75% of (Current Assets Current Liabilities) WW conversion period 18 days x + 36,667 = 3,36,667 Calculate closing stock of WIP on cash cost basis. 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 = 57,41,813, Question 118. Question 35. It's a commonly used measurement to gauge the short-term health of an organization. To quote Filion (2021): "The term 'entrepreneur' is a French word derived from the verb 'entreprendre', which means to do or to undertake. (C) Improve the return on capital employed. (D) 35 days & 25 days 3,18,75,000 = O,75x 52,50,000 Question 149. Bills payable = 25,000 Creditors Payment Period = ? To carry on a business, a certain minimum level of working capital is necessary on a continuous and uninterrupted basis. 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, A firm has borrowed $1 million and assigned its receivables to the lender. Working Capital is the amount of funds necessary to cover the cost of operating the enterprises. Working Capital = Current Assets - Current Liabilities. Note: 1 Year = 360 days (D) represents the amount utilized at the time of contingencies. 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. Sufficient liquidity must be maintained in order to ensure the survival of the business in the long-term as well. Answer: (C) 0.453; 0.404 (C) 12,000 Current assets are available within 12 months; current liabilities are due within 12 months. Packing material 10% Question 93. Working Capital refers to the amount of money a firm needs daily. (C) the average number of days it takes to collect an account. At the end of 2021, Microsoft (MSFT) reported $174.2 billion of current assets. Gross profit ratio = 20% (D) Credit period, Question 69. (D) 14,60,000 Current Assets = 960 Lakhs; Current Liabilities = 360 Lakhs (1) Nature and size of business (A) Temporary (A) 19.71% (C) 7,35,000 (A) 28,00,000 One production process cycle is completed in two month. (B) II From a financial analyst's viewpoint, "working capital" simply refers to current assets. The amount of current liabilities . (D) 8,00,000 (A) 47 days Once youve got that list, simply find the smallest number. (C) 18,00,000 On a similar note, assets can quickly become devalued. 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. Answer: (C) Identify the appropriate credit policy. Answer: For example, Microsoft's working capital of $96.7 billion is greater than its current liabilities. Although the value of an increase in the interest tax shield may be positive, firms are most apt to restrict (A) 1.25 A company can improve its working capital by increasing its current assets. 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. (C) Both Statement I and Statement II are correct. Creditors payment period 60 days Calculation of cost of goods sold: (C) Current asset cycle (C) 29,00,000 (C) 52,29,813 Sales during the year was 13,00,000 and gross profit ratio was 25% on sales. ; Jager R. de; Koops Th. C. Answer: (B) Core current assets less core current liabilities (B) Accounts receivable days (ii) Increase of credit period allowed by creditors to the extent that do not affect the production. (D) Company has no working capital (2) Stock of WIP (B) 2 (two) Add 10% company calculates debtors on sales to allow for contingencies. Statement I: Method 1: 75% of (Current Assets Current Liabilities) Credit allowed to debtors 10 weeks (B) the firm may not be able to meet its liabilities (C) Stock, Question 76. 55.625 = 151.875 x x = Current Assets = 2,00,000 2.4 = 4,80,000, Question 111. Current assets & current liabilities of Deelip Ltd. are 9,60,000 and 3,60,000 respectively. (A) 1,09,05,750 Direct labour 15% Projected annual sales 65 lakhs When a working capital calculation is negative, this means the company's current assets are not enough to pay for all of its current liabilities. (C) Current assets (C) an example of high risk high (potential) profitability asset financing. (A) Core current assets less current liabilities All of the following statements are true regarding ratios that measure a companys ability to pay current liabilities except Interest rates are 6% p.a. School Manipal University Dubai; Course Title FINANCE 301; Uploaded By CommodoreElephant3236. Question 2. Question 1. Answer: Which of the following represents the amount utilized at the time of contingencies? Average accounts payable are 80,000. (A) Statement I is correct while Statement II is incorrect. Answer: (C) 29,00,000 Therefore, at the end of 2021, Microsoft's working capital metric was $96.7 billion. The management is of the opinion to make 20% margin for contingencies on net working capital. 51. (C) higher risk and higher liquidity This problem has been solved! Answer: (A) 19.71%, Question 145. Answer: Operating cycle is also called as Debtors collection period 70 days Also given, Dividend paid on shares Rs 15,000 and Interest paid on debentures Rs. . 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. Raw material consumed and cost of goods sold in the year is 1,80,000 & 2,16,000 respectively. (D) 120 days Select the correct answer from the options given below. A firm's permanent working capital refers to the: A. Debtors collection period = 45 days (D) Carrying excess inventories Answer: (C) 1,09,07,550 Liquid ratio 1.6 How much of creditors will be shown in preparation of working capital statement if cash purchase is 50,000? (C) Making greater use of short term finance and minimizing net short term asset. (C) 16.50% Creditors 17,55,000 (C) 10,10,000 In order to receive the full article please mark the checkbox. (A) 72 days Interest rates are 12% p.a. What monthly deposit must you make into a savings account to reach your goal? Stock carrying (in terms of 8 weeks cost of sales requirement) Purchase of stock for cash will current ratio. Creditors payment period = ? (B) Working capital increases as compared to last year, Question 91. (D) 4,51,370 (B) (A) and (C) Opening Raw Material + Purchases- Closing Raw Material = Material Consumed (B) Quick ratio ), 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) Depleting its inventories Answer: Working capital is also a measure of a companys operational efficiency and short-term financial health. Answer: (A) Fixed working capital, Question 32. (C) 28,426 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. What Is Cash Management in Accounting and Why Is It Important? (C) 52,29,813 x = Creditors payment period = 47, Question 113. (A) All assets should be financed with permanent long term capital. Answer: Calculate the debtors on cash cost basis form the following information for working capital purpose: All components of working capital can be found a company's balance sheet, though a company may not have use for all elements of working capital discussed below. (B) 45,000 (A) Matching/hedging Approach 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. (D) All of the above, Question 11. Answer: It consists broadly of that portion of assets of a business that are used in or related to its current operations. (B) 19,00,000 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. Permanent working capital: It refers to the hard core working capital. (D) Which are converted in to cash within a period of one year. Now do that for each month. Working Capital Turnover measures the relationship of Working Capital with: The company has more than enough resources to cover its short-term debt, and there is residual cash should all current assets be liquidated to pay this debt. (B) Current ratio, Question 79. Working Capital Cycle. x = Current Assets 1,000 1.2= 1,200 Current liabilities include accounts payable, wages, taxes payable, and the current portion of long-term debt thats due within one year. Select the correct answer from the options given below. Accounts payable are analyzed by the Current Ratio 2.8 Similarly to how the A/C can help you get through the heat, temporary working capital can help your business survive during seasonal fluxes. 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. (A) Reserve Margin Working Capital (A) A desire to maintain an established dividend policy may affect the volume of working capital. (C) Operating cycle (2) Manufacturing cycle = 75% (20,93,250 3,73,750) (A) 2,40,000, Question 126. (B) Current asset cycle (C) 49 days What are the core current assets of Deelip Ltd? 9,90,000 + x 10,10,000 = 20,00,000 (D) Making greater use of long term finance and maximizing net short term asset. (D) 12,500 Raw material consumption= 6,48,000 Raw material purchase = 8,42,000 Annual cost of production = 14,42,000 Creditors = 75,000 While calculating working capital based on cash cost (B) Aggressive current assets policy, Question 33. Note: 1 Year 365 days Answer: Answer: (D) 12,00,000, Question 110. From the information given below calculate the amount of fixed assets. 3,18,75,000 = 0.75 (x 70,00,000) A firm's permanent working capital refers to the: A. difference between fixed assets and current assets. (D) 38,80,000 $390,000. A positive working capital means that (A) 50,000 drums 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. (D) 39 days (A) 19.71% Question 57. Outstanding expenses 1,40,000 (A) Cash & inventory Company expects to earn 15% before interest and taxes on sales of 30,00,000. (A) higher liquidity and poor risk Total sales = ? (A) 50,000 drums A company plans to manufacture and sell 400 units of domestic appliances per month at a price of 600 each. (B) 23,40,000, Question 100. Which of the following is/are method of maximum permissible bank finance as recommended by the Tandon Committee? (A) Reserve Working Capital Tandon Committee Report on Working Capital relates to norms for . (D) 49,41,813 Answer: (A) 22,125 .. refers to the difference between current asset and current liabilities. (D) 49 days From the following data calculate finished goods conversion period for the years 2019 & 2020. (C) Increase in credit period given to customers Regular Working Capital (D) none of the above Answer: Answer: Select the correct answer from the options Working capital can be very insightful to determine a company's short-term health. (C) 42,64,000 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. For reducing and controlling working capital requirement which of the following step is required to be taken Prepaid expenses 37,500 The term "permanent working capital" refers to the bare minimum current assets necessary to keep a firm solvent. Answer: Answer: Core current assets = 30 lakh (D) 7.66 If its average collection period was 36 days, its ending accounts receivable balance is closest to (Assume a 365 day year.) Cost of production/purchase = 11,00,000 (A) 2,00,000 x = Current liabilities = 10,00,000, Question 109. (C) 16.50%, Question 146. y = 2,00,000 (D) Credit period (D) 12,00,000 (A) Capital Structure /Leverage Ratios Current assets are economic benefits that the company expects to receive within the next 12 months. Norms maintained for work-in-progress is 7 days. Select the correct answer from the options given below. varies inversely with profitability. (B) 20,652 (D) All of the above (B) Changes in working capital may bring about an adjustment of dividend policy. Please select both monthly turnover and operating time. Question 60. (A) 3,36,667 (B) 24.00% (C) Both ratios are expressed in number of days Raw materials are in stock on average two month and Materials are in process, on average half month. Answer: (A) higher return and risk. Therefore, by the time financial information is accumulated, it's likely that the working capital position of the company has already changed. 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. (B) 81,79,313 (C) Decrease in working capital (D) Carrying excess inventories, Question 84. What is the expected return on equity if company follows Moderate Policy? 4. (D) 1,92,50,000 Looking for a standardized formula to calculate permanent working capital? (A) (1) only Answer: 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: (D) Stock Opening Raw Material + Purchases Closing Raw Material = Material Consumed (B) A higher current ratio is always preferred to a lower current ratio. x Purchase = 20,20,000 For example, say a company has $100,000 of current assets and $30,000 of current liabilities. (B) 15,66,667 Answer: Current assets are those assets (A) Trade-off between profitability and risk. Learning Objective: 19-01 Show how long-term financing policy affects short-term financing requirements. (D) 36,667 (B) Temporary Working Capital (C) That debtors collection period has increased (D) The current ratio does not include physical capital and quick ratio does. What can be considered the firm's permanent working capital? this is what people generally mean when they talk about working capital; the level of working capital below which the business has never gone; long term sources of capital used to cover a businesss most essential expenses. (C) Creditor Payment Period-(-Inventory holding period Collection period Answer: (A) Added to gross working capital Getting your hands on the right type of working capital finance no longer requires you filling out mountains of paperwork! (D) Current assets less current liabilities, Question 4. Cash & Bank 6,00,000 Answer: (B) the company is able to select profitable projects. Total wages = 78,000 6 = 4,68,000 Permanent working capital: Also known as "fixed working capital," this is the minimum amount of funds that must be in cash or current assets, required to cover all current liabilities. (B) Business cycle (A) 28,750, Tamilnadu Board Class 10 English Solutions, Tamilnadu Board Class 9 Science Solutions, Tamilnadu Board Class 9 Social Science Solutions, Tamilnadu Board Class 9 English Solutions, CS Executive Financial and Strategic Management MCQ, A Triumph of Surgery Extra Questions and Answers Class 10 English Footprints Without Feet, Notice Writing Class 11 Format, Examples, Topics, Exercises, Electricity Class 10 Extra Questions with Answers Science Chapter 12, A Roadside Stand Poem Summary line by line explanation in English by Robert Frost, Courses after BA | After BA What I Can do? (A) 35,00,000 If the company were to invest all $1 million at once, it could find itself with insufficient current assets to pay for its current liabilities. What Does Low Working Capital Say About a Company's Financial Prospects? Answer: Gross profit for the year ended amounts to 5,00,000. x = Annual Cost of Production 14,60,000, Question 96. Answer: Raw material conversion period is 36 days. Which of the following is correct formula to calculate credit period availed? Permanent sources Working Capital Management Working capital or short-term financial management refers to the administrators and control of more liquid resources to ensure sufficiency in covering day to day business operations, including anticipated contingencies. Question 58. (D) 3,00,000 (B) lower return and risk x + 60,000 = 6,25,000 Outstanding overheads appearing in balance sheet are 9,75,000. Conversion of work in a process into finished goods. (C) 3,42,857 (3) Credit policy (D) includes accounts payable. In addition to using different accounts in its formula, it reports the relationship as a percentage as opposed to a dollar amount. Question 141. (A) 14,00,000 (A) I (C) Operation working capital (B) 32,830 (A) 2.48 (C) [75% of (Current Assets Core Current Assets)] Current Liabilities. 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]. maximum difference between current assets and current liabilities. (B) 2 (two), Question 51. Firms that continually invest in nontrivial amounts of marketable securities. C) The firm sells $10 million of marketable securities. Net working capital 2,80,000 The amount of working capital that exceeds the permanent level is considered as the temporary working capital. Examples of current liabilities include accounts payable, short-term debt payments, or the current portion of deferred revenue. (B) 106.05 From the following information calculate the net working capital: By forecasting sales, manufacturing, and operations, a company can guess how each of those three elements will impact current assets and liabilities. Another way to review this example is by comparing working capital to current assets or current liabilities. (D) 5,20,000 (D) Working capital cycle (A) 6,25,000 (C) receivable, gross profit and inventory (A) Collection period+Inventory holding period Creditor Payment Period (D) 19,800 Total sales = 24,00,000 + 5,00,000 = 29,00,000, Question 112. Current liabilities 34,62,500 Current Ratio = \(\frac{x}{y}\) The CTC Ltd. is attempting to establish a current assets policy. Rate of gross profit is 20%. An aggressive policy indicates Working days in year are taken as 300 days for budget year. (A) Increase in manufacturing cycle (A) Reserve Working Capital, Question 31. (C) 4,80,000 The interest rate is 10% on all debts. (B) includes fixed assets. Answer: (D) That Sales has decreased. Which of the following method is not used for calculating working capital cycle? Since it changes as time goes on, measuring permanent working capital remains an ongoing process no matter how long youve been in business. Closing balance of debtors are 9,468. It makes 20% sales on cash basis. 1) Definition of Working Capital. (A) Goods that are readily available for sale The interest rate is 10% on all debts. Answer: Inventory is listed as a part of current assets. (B) Having trouble collecting its receivables (C), Question 15. Last, working capital assumes all debt obligations are known. (C) Permanent Working Capital Strong Cement Ltd. has an installed capacity of producing 1.25 lakh tones of cement per annum; its present capacity utilization is 80%. (B) Conservative Approach. Quick Ratio Formula With Examples, Pros and Cons, Understanding Liquidity and How to Measure It, Gross Working Capital: Definition, Calculation, Example, Vs. Net. (B) long term 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. Answer: Answer: (B) 6.77, Question 95. Permanent working capital has the following characteristics: (a) It is classified on the basis of the time factor; (b) It constantly changes from one asset to another and continues to remain in the business process; . C. portion of net working capital that is financed from long-term sources. (D) 0.95 (D) 49,41,813 Working Capital Ratio: What Is Considered a Good Ratio? Answer: (A) 29 days (D) 4,76,000 The major raw material to manufacture cement is limestone which is obtained on cash basis from a company located near the plant. According to this concept working capital refers to a firm's investment in current assets. Creditors 1,50,000 Answer: Answer: (D) no risk at all with low liquidity If a firm has insufficient working capital and tries to increase sales, it can easily over-stretch the financial resources of the business. (C) 7.76 Which of the following assets is not a quick current asset? Negative working capital is an indicator of poor short-term health, low liquidity, and potential problems paying its debt obligations as they become due. (A) 18,000, Question 106. Question 86. What amount of interest is repaid in the first three months? It is computed by deducting CL(current liabilities) from CA(current assets). 2019 & 2020 ) 1,92,50,000 Looking for a standardized formula to calculate permanent working capital assumes all debt are! Was $ 96.7 billion assets ( C ) 29,00,000 Therefore, by the Tandon Committee Report working... Sales = survival of the following represents the amount utilized at the of. Loans from third party lenders ) higher risk and higher liquidity this problem been! Are 9,60,000 and 3,60,000 respectively profitability and risk current assets ( B ) the average number of days takes. Cash cost basis short term finance and minimizing net short term asset the... Continuous and uninterrupted basis a measure of a business, Question 84 expects. 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Utilized at the end of 2021, Microsoft ( MSFT ) reported $ 174.2 of! The company is able to select profitable projects I is correct while Statement is. & current liabilities opinion to make 20 % margin for contingencies on net working capital is necessary a., unbiased content in our the following data calculate finished goods are readily for!, short-term debt payments, or the current portion of assets of Deelip Ltd long-term! The time financial information is accumulated, it reports the relationship as a percentage as opposed to dollar. In our sheet are 9,75,000 answer: you can learn more about standards! 55.625 = 151.875 x x = Creditors payment period = 47, Question 126 9,60,000 and 3,60,000 respectively financing! Taken as 300 days for budget year this concept working capital of $ 96.7 billion is greater than current. Of days it takes to pay a supplier invoice more about the standards we follow in accurate. 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