(B) 37,80,000, Question 117. (A) 19.71%, Question 145. For example, a service company that does not carry inventory will simply not factor inventory into its working capital calculation. (A) 28,246 Creditors 4 weeks \(\left(4,20,000 \times \frac{4}{52}\right)\) = 32308, Question 138. (B) Cost of Production, Question 89. Permanent working capital - Testimonianze sulla storia della Magistratura italiana (Orazio Abbamonte), Principles of Marketing (Philip Kotler; Gary Armstrong; Valerie Trifts; Peggy H. Cunningham), Australian Financial Accounting (Craig Deegan), Database Systems: Design Implementation and Management (Carlos Coronel; Steven Morris), Financial Accounting: an Integrated Approach (Ken Trotman; Michael Gibbins), Company Accounting (Ken Leo; John Hoggett; John Sweeting; Jennie Radford). (B) 18 days Answer: (D) 5,20,000, Question 125. (A) Current capital or circulating capital An effective working capital management strategy will help an organisation maximise profitability and liquidity. Selling price is 50 per unit and production and sales for the year are 69,000 units and 75,000 units respectively. (D) Variable working capital Question 85. (C) 52,29,813 (B) the firms investment in current assets. Question 55. (B) (A) and (C) (D) Inventory days 1,20,000 + Purchases 1,80,000 = 3,60,000 From the following information calculate the working capital: (B) Current assets & current liabilities (B) How many time account receivable is collected Answer: (B) Regression analysis method B. minimum difference between current assets and current liabilities. For example, Microsoft's working capital of $96.7 billion is greater than its current liabilities. (C) 10,000 Debtors 4,00,000 (A) 14,00,000 Question 148. Direct labour 15% Understanding Coca-Cola's Capital Structure (KO). Therefore, companies that are using working capital inefficiently or needing extra capital upfront can boost cash flow by squeezing suppliers and customers. Working Capital Management CS Executive Financial and Strategic Management MCQQuestions with Answers you can quickly revise the concepts. A) The firm issues $1 million of short-term debt and invests the proceeds in inventory. Working capital = 11,70,000 + 9,58150 + 26,65,000 + 55,12,000 + 6,00,000 17,55,000 14,95,000 = 76,55,750. (A) 28,00,000 In deciding the appropriate level of current assets for the firm, management is confronted with Maximum permissible bank finance as per Tandon Committee norms is 3,15,000. In deciding the appropriate level of current assets for the firm, management is confronted with a trade-off between profitability and risk. (C) Credit sales. Stock of the year is 20,000 more than what it was at the beginning of the year (B) Issue long-term debt to buy inventory For instance, if a company has current assets of $100,000 and current liabilities of $80,000, then its working capital would be $20,000. Note: 1 Year = 360 days 5,40,000 and Debtors at the end of year is ? (B) the company currently is unable to meet its short-term liabilities (C) 5,83,000 (B) Accounts receivable. Answer: x = Current Assets = 2,00,000 2.4 = 4,80,000, Question 111. y = 2,00,000 D) firm uses no equity in its capital structure. NS Ltd. gives the following information: (C) 12,000 (B) Prepaid expenses (Current Assets Current Liabilities) \(2.8=\frac{28,00,000}{x}\) By only looking at immediate debts and offsetting them with the most liquid of assets, a company can better understand what sort of liquidity it has in the near future. (C) 90 days Question 19. = [75% of (Current Assets Core Current Assets)] Current Liabilities Gross profit ratio = 20% (3) Short Term Investments (B) Aggressive current assets policy It fluctuates over time. The working capital ratio, also known as the current ratio, is a measure of the company's ability to meet short-term obligations. Learning Objective: 19-01 Show how long-term financing policy affects short-term financing requirements. D) A customer pays an outstanding bill. Method 1: 75% of (Current Assets Current Liabilities) (C) [75% of (Current Assets Core Current Assets)] Current Liabilities (D) 4,51,370 Creditors 1,50,000 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. | 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) lower return and very low risk What can be considered the firms permanent working capital? 1) Definition of Working Capital. Which of the following is correct formula to calculate WIP Conversion Period? (C) 163.25 (A) 4.2 months (C) Average collection period (A) Annual Sales (D) 425 lakhs Question 18. (A) Overrating (B) the firm may not be able to meet its liabilities (C) Stock (B) Trade-off between liquidity and marketability. Answer: Fixed assets are 6,00,000 and the firm plans to maintain a 50% debt-to-assets ratio. (A) the amount utilized at the time of contingencies. (A) Short term bills receivables maximum difference between current assets and current liabilities. 3,71,25,000 = 0.75x Simple enough, right? (D) 2.5 (two and half) (D) 12,00,000 Answer: Add 10% company calculates debtors on sales to allow for contingencies. Instead of Annual Factory Cost WIP Conversion Period can be calculated taking . as base. 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Calculate closing stock of WIP on cash cost basis. (C) Current assets Variable manufacturing overheads = 2 Fixed manufacturing overheads = 1 Lag in payment of overheads = one month 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. (B) Deducted from gross working capital What happens to a firm whose uses of cash exceed its sources of cash during an accounting period? (C) 75%of(CoreCurrentAssets-Current Liabilities) In order for it to run, there are certain functions that are absolutely necessary, while others are less important. (A) 13.75 Financial statement of A Ltd. shows the following data: WC(working capital) implies the income or money which will be required to fulfill the firms or companys present obligations or STO(short-term obligations). D. amounts that must be held to meet debt covenants. Working capital is a measure of a companys liquidity and short-term financial health. a business has to carry all the time irrespective of the level of manufacturing/marketing operations. Raw material conversion period, Question 92. It is stated in the problem that rate of gross profit is 2096 and export sales price 1096 below domestic price. for purchasing raw material and supplies, payment of wages, salaries and other sundry expenses. (B) 106.05 (C) an example of high risk high (potential) profitability asset financing. Question 135. (D) Goods that can be sold within a short span of time It is understood that a current ratio of .. for a manufacturing firm implies that the firm has an optimum amount of working capital. (A) Borrow short term to finance additional fixed assets. 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. Most major new projects, such as an expansion in production or into new markets, require an upfront investment. (C) Not enough data 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. (B) Liquidity ratio Cost Structure for WIP: Question 136. (D) Working capital cycle A firm's permanent working capital refers to the: A. Even a profitable business may fail if it does not have adequate cash flow to meet its liabilities as they fall due. refers to the length of time allowed by a firm for its customers to make payment for their purchases. (C) 30,000 Current Ratio vs. Quick Ratio: What's the Difference? Gross working capital indicates firm's investment and financing of current assets. Cash monitoring is needed by both individuals and businesses for financial stability. N Ltd. gives the following information: Question 83. (B) [75% of (Core Current Assets Current Assets)] Current Liabilities (D) None of the above Calculation of cost of goods sold: What can be considered the firm's permanent working capital? (B) 4,00,000 Three alternative current assets policies are under consideration 40%, 50% and 60% of projected sales. (A) Percentage of sales method Lag in payment of wages 1 month. It is mainly concerned with the fact that funds are not unnecessarily locked in current assets. (A) To maintain the optimum levels of investment in current assets. Total wages for the year of Rakshit Ltd., a listed company are 64,80,000 out of which 2,40,000 are paid in cash immediately after they became due. Company expects to earn 15% before interest and taxes on sales of 30,00,000. Closing balance of debtors are 9,468. (C) Liquid assets less current liabilities (ii) Increase of credit period allowed by creditors to the extent that do not affect the production. (C) 16,33,333 (A) 35,00,000 (A) Matching/hedging Approach Temporary working capital usually fluctuates over the permanent working capital. 57,41,813 = 0.75 (x 32,50,000) (D) 50% of (Core Current Assets-Current Liabilities) 45,000 = 0.75x (B) If a company increases its current liabilities by 1,000 and simultaneously increases its inventories by 1,000, its quick ratio must fall. The capital required for a business is classified into two main categories: Fixed capital and Working capital. Which of the following is correct formula to calculate credit period availed? 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. (A) higher return and risk. (C) 4,87,500 (C) 65 days Answer: (D) 90,000; 31,920 This is calculated by deducting the current liabilities against current assets. 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