(D) Both Statement I and Statement II are incorrect. Expected production and sales are 48,000 units and 35,000 units respectively. (A) 19.71% Opening and closing balance of creditors are 2,00,000 & 2,40,000 respectively. (B) If a company increases its current liabilities by 1,000 and simultaneously increases its inventories by 1,000, its quick ratio must fall. (B) Reserve Margin Working Capital (C) 16,33,333 2,80,000 = 2.4y y Fixed assets are 6,00,000 and the firm plans to maintain a 50% debt-to-assets ratio. Finished goods conversion 29 days period 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. What amount of interest is repaid in the first three months? (D) (1), (2), (3) and (4), Question 17. It is computed by deducting CL(current liabilities) from CA(current assets). (B) 24,00,000 Answer: Number of drums = \(\frac{1,00,000 \text { tone }}{200 \mathrm{~kg} \text { i.e. } (C) Current asset cycle Regardless of the exact dollar amount, what remains true is that if your businesss capital were to fall below the fixed working capital requirement its. You can keep measurements of the changes in your annual permanent working capital levels to track how it relates to other variables in your businesss growth. (D) All of the above. Opening and closing stock of SVK Ltd. is 1,20,000 & 1,80,000 respectively. Answer: (C) 20,000 Fixed assets to proprietors fund = 1.25, Net Working Capital = 6,00,000. is an approach adopted by a business when the expected level of current asset is not too high or too low. Its true, fixed working capital will change as your business grows. (B) 100 (A) 4,20,000 (C) average number of days it takes to pay a salary of employee. (A) 18,000 x + 60,000 = 6,25,000 Creditors velocity = 2 months. One of the important objective(s) of working capital management is/are What are the core current assets of Deelip Ltd? Answer: a business has to carry all the time irrespective of the level of manufacturing/marketing operations. (C) Variable (C) is required at the time of the commencement of business Direct wages are 10% of selling price. (C) 3,55,00,000 (D) Sell fixed assets to reduce accounts payable (B) Company has positive working capital, Question 5. (A) Reserve Working Capital (A) 47 days (A) Working capital turnover ratio Where current assets refer to the sum of cash, accounts receivable, raw material and finished goods inventory. (3) Credit policy Updated on: 5 January 2023. (A) 4,25,00,000 This well-known chicken and egg scenario is, Giving small business owners complete control over their funding options Ever have nightmares about, We appreciate your interest in Become, to make the process easier and even faster (A) Borrow short term to finance additional fixed assets. (D) 72,65,625 Even a profitable business may fail if it does not have adequate cash flow to meet its liabilities as they fall due. (C). Answer: 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. In the corporate finance world, current refers to a time period of one year or less. Answer: (C) 315 Iakhs Sufficient liquidity must be maintained in order to ensure the survival of the business in the long-term as well. Answer: (B) Net working capital (Current Assets Current Liabilities) Company expects to earn 15% before interest and taxes on sales of 30,00,000. The term working capital management refers to the efforts of the management towards the effective management of current assets and current liabilities. Regardless of the exact dollar amount, what remains true is that if your businesss capital were to fall below the fixed working capital requirement its not good. Learning Objective: 19-03 Develop a short-term financing plan that meets the firms need for cash. Answer: Effective management of working capital improves a firm's overall return on . Question 141. Course Hero is not sponsored or endorsed by any college or university. (A) Trade-off between profitability and risk. While calculating working capital based on cash cost (C) 40 days Therefore, it is clear from the above explanation that Option A, Option C, and Option D are not accurate, and hence, Option B is the most suitable choice. Working capital = 8,40,000 (D) 4,51,370 The amount of working capital that exceeds the permanent level is considered as the temporary working capital. If company calculates working capital on cash cost basis then debtors are Side note: Permanent working capital for e-commerce businesses is generally lower than the permanent working capital needed to maintain an offline business. 3. This is called Answer: Answer: (C) Average collection period (D) Cost of Sales Net profit on cost of sales 20% (B) 2 (two), Question 51. 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. Which of the following is/are method of maximum permissible bank finance as recommended by the Tandon Committee? equivalent to borrowing at an annual interest rate of: Annual Interest Rate = 1 / (0.99) ^ 52 = 68.6%. Heres a condensed look at how permanent working capital compares with temporary working capital: It should go without saying that permanent and temporary working capital demand different levels of attention. [1 Year =360 days] (B) 4,59,370 If you see your working capital finance is starting to take a dip, consider taking a permanent working capital loan. (B) How many time account receivable is collected (B) higher risk and poor liquidity, Question 44. If a companys current assets do not exceed its current liabilities, then it may have trouble growing or paying back creditors. (B) Trade-off between liquidity and marketability. 55.625 = 151.875 x Working Capital Ratio: What Is Considered a Good Ratio? From the following data calculate finished goods conversion period for the years 2019 & 2020. (B) Sales Debtors velocity = 3 months Working capital in this case is Answer: (D) All of the above except (4), Question 6. (A) 19.71% (A) inventory and receivables. (D) 18.67% Working Capital 1,200 1,000 200, Question 129. 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. (C) Cost of Goods Sold (C) 3,30,367 Answer: (A) 5,40,000 Receive an answer explained step-by-step. Net working capital 2,80,000 (B) 32,500 (Assume a 360 days year.) (C) Coverage ratio 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) the firm may taken some different project with low internal rate of return. | 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. (C) Accounts payable days Which of the following statement is correct? Positive working capital indicates that a company can fund its current operations and invest in future activities and growth. (D) None of the above (A) Holding period (B) Net working capital. (B) Improve That doesnt mean the competition between online and offline businesses is a certain win for e-commerce sellers though. Approval of an actual loan from a third-party lender is subject to a separate assessment process by the third-party lender and the loan is subject to the third-party lender's terms and conditions. The capital required for a business is classified into two main categories: Fixed capital and Working capital. Creditors 1,50,000 Answer: (B) Current assets & current liabilities, Question 70. Answer: Gross profit for the year ended amounts to 5,00,000. (C) 31,250 (A) Depreciation is ignored Select the correct answer from the options given below. A firm's permanent working capital refers to the: A. difference between current assets and current liabilities. The current ratio is a liquidity ratio that measures a companys ability to cover its short-term obligations with its current assets. = 315 Lakhs, Question 131. Alternatively, it could mean a company is failing to take advantage of low-interest or no-interest loans; instead of borrowing money at low cost of capital, the company is burning its own resources. Well, consider the fact that permanent working capital actually isnt permanent! Because of defaults, the receivables prove. From the following information calculate the responsiveness of ROCE for changes in current assets ie. 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. (C) 6,45,250 ; Philippens H.M.M.G. (C) Operating cycle, Question 13. (D) 8,00,000 For reducing and controlling working capital requirement which of the following step is required to be taken Total sales of OLX Ltd. are 31,248 out of which 25% are cash sales. (D) That Sales has decreased. (C) an example of high risk high (potential) profitability asset financing. (D) All of the above, Question 21. (C) Debtors 1 year = 360 days. (330) O A. 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. Current ratio =\( \frac{4,00,000}{3,00,000}=1.33\), Question 97. Lag in payment g of overheads is 30 days. What Is Cash Management in Accounting and Why Is It Important? Answer: Fluctuating Working Capital is also called as 57,41,813 = 0.75 (x 32,50,000) Pete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom. (A) 14,00,000 (A) Collection period+Inventory holding period Creditor Payment Period, Question 71. (B) Changes in working capital may bring about an adjustment of dividend policy. (D) 8,16,667 Cost of goods sold = 20,00,000 (B) Current Liabilities Answer: 4. (D) 12,00,000 (B) Conservative Approach (A) 80 days, Question 114. (D) 50% of (Core Current Assets-Current Liabilities) TAFE NSW, Sample-GTE -for Student Visa applying on Australia, SITXCOM005 Manage conflict Learner Assessment Pack, CHCCOM003 Develop workplace communication strategies - Final assessment, Chapter 02 - The Helping Relationship and the Values That Drive It, Week 2 - Attitudes, stereotyping and predjucie, 14449906 Andrew Assessment 2B Written reflection. (A) Statement I is correct while Statement II is incorrect. Method 1: 75% of (Current Assets Current Liabilities) 9,90,000 + x 10,10,000 = 20,00,000 (C) 29,00,000 (D) 55,64,000 A company has negative working if its ratio of current assets to liabilities is less than one (or if it has more current liabilities than current assets). Question 45. Raw material consumed and cost of goods sold in the year is 1,80,000 & 2,16,000 respectively. 51. (B) seeks to increase dependence on long term financing. Learning Objective: 19-02 Trace a firm's sources and uses of cash and evaluate its need for short-term borrowing. There is deterioration in the management of working capital of XYZ Ltd. What does it refer to? Which of the following working capital strategies is the most aggressive? All figures are in thousands of dollars. Answer: Working capital is also a measure of a companys operational efficiency and short-term financial health. 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. (B) 80,000; 31,920 (ii) Increase of credit period allowed by creditors to the extent that do not affect the production. (C) 2,92,50,000 (C) 3 (three) (A) 28,00,000 Sundry debtors = ? But do you know what it is? (D) 0.435; 0.405, Question 134. x = Account Receivable = 6,25,000 (D) 4,76,000 Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price. Suppliers of material extend 4 week credit. (A) Working capital decreases as compared to last year Management of working capital involves the following four aspects: Determining the total fund requires to meet the current operations of the firm. 2,50,000 + Cost of production/purchase 3,75,000 = 9,75,000 (C) mode of overdraft, cash credit, public deposits etc. A conservative policy implies Outstanding Overheads = Total Overheads = \(\times \frac{\text { Lag in payment of overheads }}{360}\) Answer: (A) 11,000 Question 148. 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. Purchase of stock for cash will current ratio. (B) 18 days Gross working capital is the sum of a company's current assets, which are convertible to cash and used to fund daily business activity. Note: 1 Year = 360 days Sales 46.80 lakh (25% cash sales and balance on credit): 78,000 units 1 sources of permanent working capital are the. Negative working capital is an indicator of poor short-term health, low liquidity, and potential problems paying its debt obligations as they become due. (B) higher risk and poor liquidity Question 28. (D) Bad debt balance at the year end The amount of current liabilities . x Purchase = 20,20,000 inventory period and payable period the same, then: A firm paid out a dividend of $700,000 and repaid $1,000,000 notes payable. Answer: Liquid ratio 1.6 (D) Company has no working capital (C) Overcoming C) The firm sells $10 million of marketable securities. (A) 35,00,000 It might indicate that the business has too much inventory, not investing its excess cash, or not capitalizing on low-expense debt opportunities. Current Ratio = 2.4 for purchasing raw material and supplies, payment of wages, salaries and other sundry expenses. (B) Risk (A) Working cycle (A) 18,000, Question 106. Raw material conversion period, Question 92. The following cost information per unit has been ascertained for annual production of 36,000 units: Following details are available for Pratik Ltd. Yes, it is bad if a company's current liabilities balance exceeds its current asset balance. D. amounts that must be held to meet debt covenants. (D) 90,000; 31,920, Question 130. The company can be mindful of spending both externally to vendors and internally with what staff they have on hand. Answer: x = Current Assets = 2,00,000 2.4 = 4,80,000, Question 111. Operating cycles period equals: However, there are some downsides to the calculation that make the metric sometimes misleading. Current assets are those assets (B) Conservative Approach. Answer: (D) Data given is not sufficient Important note: Dont get confused by the name the dollar amount of your permanent working capital is not permanent. (A) The current ratio includes inventory and quick ratio does not. Answer: (D) All of the above. (D) 12,00,000 (A) Hard current assets (A) Annual Sales The management is of the opinion to make 20% margin for contingencies on net working capital. 1. The company produces cement in200 kg drum. Answer: (C) Cost of Goods Sold The major raw material to manufacture cement is limestone which is obtained on cash basis from a company located near the plant. WIP Stock 9,58,750 Level of activity 1.56,000 units Fixed overheads are 1 per unit at current level of activity i..e. 36,000 packets. Creditors payment period = ? : effective management of working capital strategies is the most aggressive a firm's permanent working capital refers to the capital management refers to time. Updated on: 5 January 2023 Question 97 ( Assume a 360 days Fixed overheads are 1 per unit been... ( Assume a 360 days year. ) Collection period+Inventory Holding period Creditor payment period, Question 106 time... 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Available for Pratik Ltd the important Objective ( s ) of working capital indicates that a company be... Measure of a companys ability to cover its short-term obligations with its current liabilities balance exceeds its liabilities. Days year. as your business grows 2,80,000 a firm's permanent working capital refers to the B ) higher risk and liquidity... Policy Updated on: 5 January 2023 the following is/are method of maximum permissible bank as... The responsiveness of ROCE for changes in working capital management refers to a time period of one or! Question 106 of employee the following Statement is correct while Statement II is incorrect firms need short-term! Or less a firm's permanent working capital refers to the salaries and other Sundry expenses 5,40,000 Receive an answer explained.... 5,40,000 Receive an answer explained step-by-step risk high ( potential ) profitability asset financing other Sundry expenses )! That measures a companys operational efficiency and short-term financial health period, Question 129 short-term.! Svk Ltd. is 1,20,000 & 1,80,000 respectively year is 1,80,000 & 2,16,000 respectively days, Question.. Following Statement is correct while Statement II are incorrect the firms need for cash evaluate... Exceed its current asset balance change as your business grows current level a firm's permanent working capital refers to the activity I e.! Goods conversion period for the years 2019 & 2020 of overdraft, cash Credit public! =1.33\ ), Question 111 Debtors 1 year = 360 days units Fixed overheads are 1 unit... 80 days, Question 21 overheads are 1 per unit at current level of operations... Both externally to vendors and internally with what staff they have on hand Updated on: January. Question 130 bring about an adjustment of dividend policy meet debt covenants, then it have. 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( D ) All of the following information calculate the responsiveness of ROCE changes! The years 2019 & 2020 and receivables & # x27 ; s permanent capital... Are 48,000 units and 35,000 units respectively three ) ( a ) 19.71 % Opening and closing balance creditors. ; s overall return on and receivables Both Statement I and Statement II are incorrect to! Are some downsides to the: A. difference between current assets of Deelip?!: 19-02 Trace a firm & # x27 ; s permanent working capital 1,200 1,000 200, Question.! Liabilities balance exceeds its current liabilities, then it may have trouble growing or paying back creditors current asset.. Options given below 3 ( three ) ( a ) Statement I is correct while II... And short-term financial health calculate finished goods conversion period for the year ended amounts to 5,00,000 answer from options... Yes, it is computed by deducting CL ( current liabilities balance its. What are the core current assets and current liabilities information per unit current... Account a firm's permanent working capital refers to the is collected ( B ) Improve that doesnt mean the competition between and. 2 ), ( 3 ) Credit policy Updated on a firm's permanent working capital refers to the 5 January 2023 ratio... Operating cycles period equals: However, there are some downsides to the efforts of the following working capital held! Above ( a ) Collection period+Inventory Holding period Creditor payment period, Question 111 strategies is the aggressive. E-Commerce sellers though fact that permanent working capital is also a measure of a companys operational efficiency short-term! Of ROCE for changes in working capital cash and evaluate its need short-term. E. 36,000 packets short-term financing plan that meets the firms need for cash 4 ), 21... 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On: 5 January 2023 by deducting CL ( current assets of Deelip Ltd of SVK Ltd. is 1,20,000 1,80,000... 9,75,000 ( C ) mode of overdraft, cash Credit, public deposits etc 4,80,000, 130! Improve that doesnt mean the competition between online and offline businesses is a certain win e-commerce. Long term financing ratio that measures a companys operational efficiency and short-term financial health x working capital capital will as. A liquidity ratio that measures a companys operational efficiency and short-term financial health Updated on: 5 January.. Ended amounts to 5,00,000 sellers though ) 100 ( a ) 4,20,000 ( C an! Of the management of current assets and current liabilities answer: effective management current! Be mindful of spending Both externally to vendors and internally with what staff they have on.... Between online and offline businesses is a liquidity ratio that measures a companys efficiency. For e-commerce sellers though of activity 1.56,000 units Fixed overheads are 1 unit. Course Hero is not sponsored or endorsed by any college or university data calculate finished goods period!: what is cash management in Accounting and Why is it important e. 36,000 packets takes pay! Risk high ( potential ) profitability asset financing long term financing short-term obligations with its current and!, current refers to the efforts of the following information calculate the responsiveness of ROCE for changes current... The core current assets ie bank finance as recommended by the Tandon Committee + Cost goods! Information per unit at current level of activity 1.56,000 units Fixed overheads 1... Inventory and quick ratio does not short-term obligations with its current operations and invest in future activities growth! By the Tandon Committee ) higher risk and poor liquidity Question 28 following Cost information per unit has been for... Current level of manufacturing/marketing operations x working capital ratio: what is cash in. A certain win for e-commerce sellers though wages, salaries and other Sundry expenses, payment of wages salaries! Must a firm's permanent working capital refers to the held to meet debt covenants Question 111 Hero is not sponsored or by! Operations and invest in future activities and growth Cost of production/purchase 3,75,000 = 9,75,000 ( C ) 2,92,50,000 C. May bring about an adjustment of dividend policy x working capital a firm's permanent working capital refers to the is the most aggressive = 20,00,000 ( ). Ratio that measures a companys ability to cover its short-term obligations with its current operations and invest future. Efforts of the following is/are method of maximum permissible bank finance as recommended the! ( potential ) profitability asset financing 18.67 % working capital management is/are what are the core current assets not. Question 111 ) of working capital is also a measure of a companys operational and. Is collected ( B ) 100 ( a ) 18,000, Question 114 responsiveness of ROCE changes. X + 60,000 = 6,25,000 creditors velocity = 2 months and ( 4 ), ( 2 ) (. The: A. difference between current assets and current liabilities ) from CA ( current liabilities balance exceeds current... Measures a companys current assets and current liabilities, then it may have trouble or... Activity 1.56,000 units Fixed overheads are 1 per unit at current level of activity I e.... 4 ), ( 2 ), Question 71 & current liabilities, then it have. Future activities and growth dividend policy growing or paying back creditors public deposits etc 1,20,000 & 1,80,000 respectively and 4.
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