Current liabilities (such as trade credit from suppliers) is an important source of financing for many small firms. (D) 59 days Current assets & current liabilities of Deelip Ltd. are 9,60,000 and 3,60,000 respectively. (A) operational and servicing Question 54. (B) Temporary current assets should be financed with temporary working capital. (D) 1.33 (A) Increase in manufacturing cycle B. minimum difference between current assets and current liabilities. School Manipal University Dubai; Course Title FINANCE 301; Uploaded By CommodoreElephant3236. Management of working capital involves the following four aspects: Determining the total fund requires to meet the current operations of the firm. No. 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. Wages & overheads are paid in the next month of accrual. For example, a service company that does not carry inventory will simply not factor inventory into its working capital calculation. Debt collection period 45 days An aggressive policy produces 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. The following cost information per unit has been ascertained for annual production of 36,000 units: Fixed overheads are 1 per unit at current level of activity i..e. 36,000 packets. Current Ratio 2.8 Working Capital Management CS Executive Financial and Strategic Management MCQQuestions with Answers you can quickly revise the concepts. Select the correct answer from the options given below. (B) 94 days (A) Statement I is correct while Statement II is incorrect. (C) 2,92,50,000 (A) Making greater use of short term finance and maximizing net short term asset. Stock of WIP = 72,000 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 Answer: Debtors Collection Period: Question 94. = 57,41,813, Question 118. (B) 11,667 Interest rates are 6% p.a. (A) Gross Working Capital Outstanding overheads appearing in balance sheet are 9,75,000. (D) 4,76,000 (A) Operation cycle (B) Cash (C) 4,80,000 (C) 42,64,000 Answer: (D) 1,200 (B) 4,66,667 In fact, there are several kinds of working capital that a small business owner should know about, including: If youre still not entirely clear on what the differences are between permanent and temporary working capital, keep reading. Level of activity 1.56,000 units Question 141. (A) 57,41,813 (C) Inventory and prepaid expense are included in the numerator of the current ratio, but not in the numerator of the acid-test ratio. Working Capita] = CA CL A similar financial metric called the quick ratio measures a ratio of current assets to current liabilities. Answer: Equity share capital 18,00,000 x + 60,000 = 6,25,000 55.625 = 151.875 x Calculate the working capital from the following data: (C) 10,10,000 (B) 106.05 Answer: 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) 43 days Operating cost is 18,90,000. (A) higher return and risk. (A) Current capital or circulating capital, Question 61. For reducing and controlling working capital requirement which of the following step is required to be taken Operating cycles period equals: . 51. The company has more short-term debt than it has short-term resources. (D) refers to the difference between current asset and Current liabilities. The amount of working capital that exceeds the permanent level is considered as the temporary working capital. (D) 1,92,50,000 Next, make a list of the daily values for your net working capital. In other words, it represents the current assets required on a continuing basis over an entire year . Scroll down to learn what permanent capital is and understand why its so important for the financial health of your small business. (B) higher return and risk. (A) Added to gross working capital Which best describes the gross margin ratio? Answer: Closing stock = 10,10,000 Sales 46.80 lakh (25% cash sales and balance on credit): 78,000 units The net effect of these transactions. (A) 28,750 (C) Day-to-day capital Now do that for each month. (C) 52 days This requirement is referred to as According to this concept working capital refers to a firm's investment in current assets. x = 47 A firm's permanent working capital refers to the: A. difference between current assets and current liabilities. Accounts receivable are analyzed by (A) higher return and risk The current ratio is a liquidity ratio that measures a companys ability to cover its short-term obligations with its current assets. A positive working capital means that (A) 69,75,000 (A) Depreciation, Question 75. Answer: (A) Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs. Also given, Dividend paid on shares Rs 15,000 and Interest paid on debentures Rs. (C) 75%of(CoreCurrentAssets-Current Liabilities) Your goal is to accumulate $60,000 in seven years' time. (A) 14,33,333 Which of the following is not considered while calculating accounts receivable period? Debtors 4,00,000 Initial Working Capital - (1) Short Term Advances (B) All the assets available for sale (B) 4,95,00,000 (B) Risk (A) 11,000 (B) gross profit and inventory (A) Working Capital = Current Assets Current Liabilities Purchases = 4,20,000 5,40,000 and Debtors at the end of year is ? (C) 16.50% Answer: Permanent Working Capital is also known as compounded quarterly. (B) the company currently is unable to meet its short-term liabilities (A) Trade-off between profitability and risk. A working capital ratio of less than one means a company isn't generating enough cash to pay down the debts due in the coming year. (D) None of the above (A) 32,380 (D) 0.435; 0.405, Question 134. Answer: (A) 12,98,625 x = Net working capital = 72,65,625, Question 143. (D) All of the above. Permanent working capital financed with long-term liabilities. (A) 4,20,000, Question 104. Rate of gross profit is 20%. (B) 2 (two) Opening stock + Purchase Closing stock = Cost of goods sold 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. What is difference between current ratio and quick ratio? Working Capital Leverage. Statement I: Maintaining adequate working capital is not just important in the short-term. Answer: Accounts receivable balances may lose value if a top customer files for bankruptcy. Note: 1 Year = 360 days Note: 1 Year = 360 days 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). (C) That debtors collection period has increased (C) 12,89,625 (A) average number of days it takes to pay a supplier fixed assets. What is the expected return on equity if company follows AggressivePolicy? Accounts payable are analyzed by the The interest rate is 10% on all debts. Question 9. The major raw material to manufacture cement is limestone which is obtained on cash basis from a company located near the plant. 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. (A) 16,667 What can be considered the firm's permanent working capital. Answer: Become provides you with easy online application services to access loans from third party lenders. (A) 2,00,000 D) firm uses no equity in its capital structure. Answer: 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. Current assets = 15,44,128 11,44,128 = 4,00,000 Say a company has accumulated $1 million in cash due to its previous years retained earnings. Maintaining adequate working capital is not just important in the short-term. Conversion of work in a process into finished goods. 5.5.2 Working capital investments Generally, working capital refers to the difference between current assets and current liabilities. From the following information calculate the net working capital: Permanent Working Capital. (C) Cost of Goods Sold x = Accounts Payable = 3,36,667 Maximum permissible bank finance as per first method = 75% of Calculate the debtors on cash cost basis form the following information for working capital purpose: (C) 20,000 Question 35. (A) supplies the funds necessary to meet the current working expenses. Production in tone = 1,25,000 tone X 80% = 1,00,000 (C) 10,10,000, Question 116. Question 27. Answer: (B) 32 days Raw materials 30% (A) 1,17,00,000 of operating cycle in a year = 4.5 (D) Profitability ratio (A) 80 days, Question 114. x = Creditors payment period = 47, Question 113. Answer: (C) Which are held by the companies to pay-off current liabilities. (A) (i) &(iii) Answer: Only Assertions is correct Only Reason is correct (B) 0.403;0.453 One production process cycle is completed in two month. (B) Net working capital. Direct wages are 10% of selling price. Raw Material Stock 11,70,000 Current Assets = 960 Lakhs; Current Liabilities = 360 Lakhs (B) Conservative Approach Creditors + Bifis Payable Account Payable x = Current Assets = 2,00,000 2.4 = 4,80,000, Question 111. (B) 7596 of Current Assets Current Liabilities. 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. . (C) Coverage ratio What relationship exists between the average collection period and accounts receivable turnover? Work-in-progress (full for material, 70% & 40% completion in respect of wages & overheads) will approximate to 15 days of production. (D) All of the above. That doesnt mean the competition between online and offline businesses is a certain win for e-commerce sellers though. (C) Liquid ratio (B) Non-cash items are not considered x = Account Receivable = 6,25,000 Which of the following is correct formula to calculate credit period availed? 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. WIP conversion period 36 days (A) 28,00,000 Answer: If credit sales for the year is ? (C) 75,65,750 (D) 19,800 Answer: Question 50. (A) varies with seasonal needs. (C) 42,64,000, Question 123. Question and Answer forum for K12 Students. All figures are in thousands of dollars. Current liabilities 34,62,500 Company expects to earn 15% before interest and taxes on sales of 30,00,000. 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; . (D) 77,55,650 (A) 1,17,00,000 Working capital is the difference between a company's current assets and current liabilities. (A) where the firm relies heavily on short term bank finance. Answer: (C) 200 Answer: (B) Sales (B) higher risk and poor liquidity (A) where the firm relies heavily on short term bank finance. The loan requires 20 quarterly repayments at an interest rate of 8% p.a. It is mainly concerned with the fact that funds are not unnecessarily locked in current assets. (D) (B) & (C) is correct. Gross profit ratio = 20% (C) 12,89,625 (D) the company is able to pay-off its short-term liabilities. Without any of those three, the car would not be able to perform its essential task properly. (A) 18,000 (D) Debtors less provision for bad and doubtful debts (D) Both (A) and (C), Question 37. (A) 24,00,000 Opening Raw Material + Purchases Closing Raw Material = Material Consumed (B) Cash sales (C) Both Statement I and Statement II are correct. Temporary working capital usually fluctuates over the permanent working capital. (C) operational and financial. (C) Not change, Question 87. A) firm uses no debt in its capital structure. (D) 12,98,265 You borrow $200,000. However, there are some downsides to the calculation that make the metric sometimes misleading. (C) 49 days Long terms loans are 5,58,80,450. (A) Leverage ratio Answer: Were sorry to be the bearer of bad news, but it doesnt exist. Answer: Note: 1 Year = 360 days Question 28. A lower current assets/fixed assets ratio means Even a profitable business may fail if it does not have adequate cash flow to meet its liabilities as they fall due. (C) mode of overdraft, cash credit, public deposits etc. (C) the company has negative earnings before interest and tax Question 8. Debtors 55,12,000 (C) Company has negative working capital (D) All of the above Raw Material Consumed = 8,42,000 Inventory balance will increase before the peak . Answer: (C) 16,33,333 = 75% (20,93,250 3,73,750) WIP Stock 9,58,750 (C) 21,600 Answer: Answer: Working capital is a highly effective barometer of a company's efficiency and effectiveness. Answer: (D) 12,00,000 (C) Creditor Payment Period-(-Inventory holding period Collection period Stock carrying (in terms of 8 weeks cost of sales requirement) To evolve suitable policies, procedures and reporting system for controlling the individual components of current assets. = 49,29,313, Question 121. Let the creditors payment period be x. What is the expected return on equity if company follows ModeratePolicy} What will be the amount of maximum permissible bank finance as per first method of Tandon Committee Norms? Hence total fixed overheads at current level of activity 36,000 1 = 36,000. 55.625 = [0.75 (232.5 30)] x (B) 24,00,000 What can be considered the firm's permanent working capital? (A) 10 Answer: (B) Statement II is correct while Statement I is incorrect. S Ltd. gives the following information: Note: 1 Year = 360 days Finished goods stock = 200 units (D) A new personal computer for the office Question 148. Answer: Most major new projects, such as an expansion in production or into new markets, require an upfront investment. Which of the following is determinant of working capital? y = 2,00,000 (D) Cant say Direct labour 15% (C) Operating cycle x = Core Current Assets = 60,000, Question 132. Calculate closing stock of WIP. (B) Current Liabilities, Question 67. (D) Working capital cycle, Question 23. Quick Ratio Formula With Examples, Pros and Cons, Understanding Liquidity and How to Measure It, Gross Working Capital: Definition, Calculation, Example, Vs. Net. Current assets are those assets (A) Cash float. 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. 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