The interest rate is 10% on all debts. (A) Matching/hedging Approach What can be considered the firm's permanent working capital? Answer: This means the company has $70,000 at its disposal in the short term if it needs to raise money for a specific reason. 1. Which of the following represents the amount utilized at the time of contingencies? The size of fixed working capital is proportional to the magnitude and growth of the business. (B) Risk (D) Working capital cycle, Question 23. What can be considered the firm's permanent working capital. The company can avoid taking on debt when unnecessary or expensive, and the company can strive to get the best credit terms available. The interest rate is 10% on all debts. Answer: A company plans to manufacture and sell 400 units of domestic appliances per month at a price of 600 each. Answer: Current liabilities are 1,00,000 given below Net Working Capital is the amount by which current assets exceed the current liabilities of a business. (B) All the assets available for sale (D) 12,00,000 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. (A) Short term bills receivables (B) 14.33 Gross working capital refers to the firm's investment in 'total current assets' needed to operate over a normal business cycle. (B) 0.403;0.453 (C) 80,000 drums (D) current assets. (A) 60,000 Investopedia requires writers to use primary sources to support their work. First, working capital is always changing. Following details are available for Pratik Ltd. (D) 14,60,000 maximum difference between current assets and current liabilities. The term working capital management refers to the efforts of the management towards the effective management of current assets and current liabilities. (C) average number of days it takes to pay a salary of employee. (D) 5,20,000 (C) 32,308 Hard core working capital is also known as Stock turnover ratio = ? Gross working capital refers to (C) 40 days (A) 7.67 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. 55.625 = 151.875 x 51. (B) 94 days Debtors collection period 70 days (C) 3,30,367 (B) Temporary Working Capital (B) gross profit and inventory Note: 1 Year 365 days Fixed overhead are 4,32,000 p.a. (D) All of the above, Question 24. Determine net cash flow from financing activities. (A) 1.25, Question 103. (D) lower risk with lower liquidity Working Capital 1,200 1,000 200, Question 129. Regular Working Capital Raw materials 30% Answer: (D) 90,000 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. Answer: (D) Trial and error method KT Ltd. opening stock was 2,50,000 and closing stock was 3,75,000. (B) Making greater use of long term finance and minimizing net short term asset. The permanent part comes from the consistent need for a business to meet the permanent working capital requirement, regardless of how the businesss activity levels might look. (D) Both Statement I and Statement II are incorrect. Answer: The author accepts no responsibility for any consequences whatsoever arising from the use of such information. (D) 9,58,750 Opening and closing stock of SVK Ltd. is 1,20,000 & 1,80,000 respectively. (D) 3,00,000 Current assets of the company are (B) is used to raise the volume of production by improvement or extension of machinery. (2) Stock of WIP = 0.75 (1,09,05,750 32,50,000) 90,000 the Average Collection Period will be? (C) 13.33 (B) the firms investment in current assets. A company can also improve working capital by reducing its short-term debts. Answer: At its most basic level, it consists of just the assets necessary . (D) 4,76,000 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. (A) Which can be sold by the companies. (C) Core current liabilities Answer: Instead of Annual Factory Cost WIP Conversion Period can be calculated taking . as base. Packing material 10% Inventory is at-risk of obsolesce or theft. Cost structure per unit: Answer: (D) 1.33 Bills receivable & Bills payable were 60,000 and 36,667 respectively. Peter Berngarten owns 100 shares of. Creditors payment period = ? Cash monitoring is needed by both individuals and businesses for financial stability. (B) Pay-back period Answer: (D) 7.66 (C) the average number of days it takes to collect an account. 5,40,000 and Debtors at the end of year is ? Answer: You borrow $200,000. If current assets increases by 20% and current liabilities decreases by 20% as compared to last year figures then (D) 12,98,265 How much raw material stock will appear in working capital statement? You are required to calculate working capital on cash cost basis. the amount of working capital that exceeds the regular working capital; reserve working capital is there for unexpected business expenses (like implementing a, the amount of capital invested in current assets. (D) All of the above, Question 21. (B) Aggressive current assets policy (B) current assets minus current liabilities. (B) How many time account receivable is collected . From the following information calculate the net working capital: (1) Short Term Advances = [0.75 (960 60)] 360 (C) A companys quick ratio never exceed its current ratio. Answer: 1,20,000 + Purchases 1,80,000 = 3,60,000 Direct expenses 5% What is the loan outstanding after the first quarterly repayment? This includes saving cash, building higher inventory reserves, prepaying expenses especially if it results in a cash discount, or closely considering which customers to extend credit to (in an attempt to reduce its bad debt write-offs). (A) 60% of Current Assets Current Liabilities Current assets = 60,00,000 32,00,000 = 28,00,000 Number of drums = \(\frac{1,00,000 \text { tone }}{200 \mathrm{~kg} \text { i.e. } (C) Operating cycle, Question 13. Answer: Getting your hands on the right type of working capital finance no longer requires you filling out mountains of paperwork! (A) Goods that are readily available for sale Cash management (B) II (C) 3 (three) (D) Hard current liabilities Answer: Cost of Production = ? (A) Liquidity, Question 39. Now do that for each month. Current assets are those assets (D) 3,00,000 (A) 29 days & 39 days (D) the company currently is able to meet its short-term liabilities (D) 5,20,000, Question 125. 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. Current Assets = 960 Lakhs; Current Liabilities = 360 Lakhs Cost of production/purchase = 11,00,000 (C) 315 Iakhs (D) 12,00,000, Question 110. (B) 5,50,000 (D) All of the above except (4) 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. Material consumed in income statement is shown at 3,60,000. (A) 4.2 months (B) 24.00% Both figures can found in the publicly disclosed financial statements for public companies, though this information may not be readily available for private companies. Answer: (D) 2.5 (two and half) (D) 12,500 x = Current liabilities = 10,00,000, Question 109. C. portion of net working capital that is financed from long-term sources. (B) 43 days (D) 4,60,000 (A) Working cycle Answer: (D) All of the above (A) Factory Cost (C) Account receivable balance at the end of the period One production process cycle is completed in two month. (D) 120 days Other things remaining constant, if the debtors increases as compared to last year it means (D) none of the above Answer: overheads remains same hence even at increased production of 48,000 packets (C) 2,92,50,000 Sales 46.80 lakh (25% cash sales and balance on credit): 78,000 units There is regular production and sales cycle, and wages and overheads accrue evenly. Answer: Answer: (D) Credit period, Question 69. A company can improve its working capital by increasing its current assets. (D) 160.05 (C) Company has negative working capital (C) Identify the appropriate credit policy. (4) Perpetual inventory policy (D) Any of the above Thus, wages are paid 3rd & 5th week which shows that lag in payment of wages is 2 week. Question 148. The quick ratio is a calculation that measures a companys ability to meet its short-term obligations with its most liquid assets. (B) 4,95,00,000 Therefore, by the time financial information is accumulated, it's likely that the working capital position of the company has already changed. (C) 90,000; 67,200 (B) 100 (D) 35 days & 25 days 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. 3,18,75,000 = O,75x 52,50,000 (C) Day-to-day capital This problem has been solved! (B) Net working capital. (D) Profitability ratio, Question 80. (C) 7,35,000 Working Capita] = CA CL (D) Variable working capital, Question 22. If current assets are 1,09,05,750 and current liabilities are 32,50,000 then maximum permissible bank finance as per second method of Tandon Committee norms is Question 42. $720.000 O c. $1,030,000 OD. Current liabilities are 70,00,000. (D) 18.67% No. Liquid Ratio = ? Now is the time to get your businesss finances arranged so that you can clearly define your businesss permanent working capital, and ensure that you dont fall below it! Working Capital = Current Assets - Current Liabilities. (D) 3,60,000 Creditors Payment Period, Question 99. (B) 45,000 Assertion (A): Working capital refers to the gross working capital and represents the amount of funds invested in current assets. (A) greater liquidity and lower risk, Question 29. Creditors payment period for the purpose of working capital statement will be You can learn more about the standards we follow in producing accurate, unbiased content in our. Answer: (C) 49 days (A) 13.75 (B) Company has positive working capital, Question 5. (A) 57,41,813 However, there are some downsides to the calculation that make the metric sometimes misleading. Although the value of an increase in the interest tax shield may be positive, firms are most apt to restrict Answer: Net working capital refers to ___________. Particulars X Answer: Which of the following would NOT improve the current ratio? (A) Current capital or circulating capital Operating cycle is also called as Accounts payable are analyzed by the (C) 3,42,857 (D) That Sales has decreased. (C) 75%of(CoreCurrentAssets-Current Liabilities) 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? Initial Working Capital - 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. (D) All of the above. 45,000 = 0.75x Therefore, companies that are using working capital inefficiently or needing extra capital upfront can boost cash flow by squeezing suppliers and customers. Debt collection period 45 days To carry on a business, a certain minimum level of working capital is necessary on a continuous and uninterrupted basis. Which of the following is not considered while calculating accounts receivable period? Gross profit for the year ended amounts to 5,00,000. (B) 19,250 (B) Working capital increases as compared to last year 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 B. Looking for a standardized formula to calculate permanent working capital? 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. An aggressive policy produces (B) 12,500 The concept of working capital can also be explained through two angles. 3,15,000 = [75% of (Current Assets- Core Current Assets)] Current Liabilities Hence total fixed overheads at current level of activity 36,000 1 = 36,000. (C) Both (A) & (B) (C) Operating cycle approach (B) Working capital increases as compared to last year, Question 91. (B) higher risk and poor liquidity, Question 44. Increase in working capital indicates outflow of cash and decrease in working capital indicates inflow of cash. Answer: (A) 9,60,000 (A) Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs. Stock = 5,60,000 (4) Production policy (D) Credit period (B) 81,79,313 Answer: (C) 200 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). 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. (C) lower return but very high risk. x = Net working capital = 72,65,625, Question 143. Select the correct answer from the options given below. (A) 16,667 Answer: (C) Gross profit (B) the firm may not be able to meet its liabilities Net working capital refers to (A) lower return and risk. Answer: x = Current Assets = 1,09,05,750, Question 102. (C) 19 days (A) operational and servicing (B) [75% of (Core Current Assets Current Assets)] Current Liabilities (B) 22,67,000 By forecasting sales, manufacturing, and operations, a company can guess how each of those three elements will impact current assets and liabilities. Business loans 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. Answer: Answer: Total sales of OLX Ltd. are 31,248 out of which 25% are cash sales. Answer: (D) 2,40,721 Current assets are economic benefits that the company expects to receive within the next 12 months. Simple enough, right? In mergers or very fast-paced companies, agreements can be missed or invoices can be processed incorrectly. Accounts receivable balances may lose value if a top customer files for bankruptcy. Opening and closing stock of SVK Ltd. is 1,20,000 & 1,80,000 respectively. (B) Statement II is correct while Statement I is incorrect. (D) Capital relating to main projects of the company Maximum permissible bank finance as per first method = 75% of (D) 20,625 Its true, fixed working capital will change as your business grows. Answer: (D) Overtone Which of the following assets is not a quick current asset? Total sales = 24,00,000 + 5,00,000 = 29,00,000, Question 112. (C) operational and financial 20,000. Question 45. Answer: Add 10% company calculates debtors on sales to allow for contingencies. (C) 1.22 (1) Nature and size of business Answer: (C) That debtors collection period has increased, Question 68. Debt Service Coverage Ratio: What is DSCR and How is It Calculated? (B) refers to the firms investment in current assets. Three alternative current assets policies are under consideration 40%, 50% and 60% of projected sales. Working capital is also represented by a firm's net investment in current assets necessary to support its everyday business. (A) 2,40,000 Fuel, intact tires, and oil are all required. (C) 16.50% (A) Increase in working capital compounded quarterly. (C) 19,215 (D) Both ratios are expressed in number of times receivables are collected per year (C) 4,80,000 (C) mode of overdraft, cash credit, public deposits etc. 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. (A) the company is able to pay-off its long-term liabilities. (B) Cash sales, Question 74. (D) Variable working capital Answer: Therefore, at the end of 2021, Microsoft's working capital metric was $96.7 billion. I. . Working capital management is a strategy that requires monitoring a company's current assets and liabilities to ensure its efficient operation. (A) 13.75 Answer: Quick Ratio =1.0 Answer: Question 47. Working capital estimates are derived from the array of assets and liabilities on a corporatebalance sheet. Current ratio 2.4 To evolve suitable policies, procedures and reporting system for controlling the individual components of current assets. Debtors collection period = 45 days Course Hero is not sponsored or endorsed by any college or university. Question 55. A negative working capital means that -.. A conservative policy means Answer: Yes, it is bad if a company's current liabilities balance exceeds its current asset balance. (A) How often account receivable received 5. (A) 80 days, Question 114. (B) 2 (two) (A) 6,25,000 (B) Deducted from gross working capital (D) the firm may taken some different project with low internal rate of return. (B) 2,36,712 Answer: Operating cost = ? Working capital management is a business strategy designed to ensure that a company operates efficiently by monitoring and using its current assets and liabilities to their most effective use.. (B) 6.77 Answer: It experiences a decrease in its cash balance (D) (B) & (C) is correct. Credit allowed by creditors 4 weeks (A) Working capital turnover ratio (B) 5,25,000 Working Capital Cycle. (D) Any of the above Debtors Collection Period: Question 94. (Current Assets Current Liabilities) In order to receive the full article please mark the checkbox. It's calculated as current assets divided by current liabilities. D. amounts that must be held to meet debt covenants. It can be divided into two . Gross profit ratio = 20% A firm's permanent working capital refers to the: A. difference between current assets and current liabilities. B. minimum difference between current assets and current liabilities. (D) Fluctuating Working Capital, Question 25. Answer: Answer: Paucity of working capital may lead to a situation where Working capital management is primarily concerned with the management and financing of: Material consumed in income statement is shown at 3,60,000. (C) Operating cycle (C) Coverage ratio (A) 57,41,813 Question 9. Which of the following working capital strategies is the most aggressive? A firm's permanent working capital refers to the: difference between fixed assets and current, maximum difference between current assets and current, portion of net working capital that is financed from long-term. On a similar note, assets can quickly become devalued. The term 'working capital' generally refers to current assets only. (C) Stock Question 135. Sorry, we can't send you the article yet. (A) inventory and receivables Current Assets are compared with: (C) 42,64,000 The current assets balance may increase or decrease due to various reasons. The following cost information per unit has been ascertained for annual production of 36,000 units: Any amount over and above the permanent level of working capital is known as working capital. (A) 14,00,000 (A) 4,20,000, Question 104. Answer: (A) Bills receivable Fixed (B) Non-cash items are not considered Answer: Current Assets ? (D) Aggressive Approach (C) 1,09,07,550 Answer: Sufficient liquidity must be maintained in order to ensure the survival of the business in the long-term as well. Thus, the working capital equation is defined as the difference between current assets and current liabilities. Working capital is a measure of a companys liquidity and short-term financial health. (B) the firm may not be able to meet its liabilities, Question 48. (A) 54 days In theory, a business could become bankrupt even if it is profitable. Contingencies are .. Answer: ), 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) Core current assets less current liabilities At the end of 2021, Microsoft (MSFT) reported $174.2 billion of current assets. Net profit on cost of sales 20% Cost Structure for WIP: Question 136. That isnt to say you should completely ignore temporary working capital on the contrary, you should do your best to balance your finances appropriately so that you have working capital left over for those temporary demands. For 3rd & 4th week: in the next week. (C) Current assets The company can be mindful of spending both externally to vendors and internally with what staff they have on hand. 2.4 = \(\frac{x}{y}\) (A) an example of moderate risk-moderate (potential) profitability asset financing. Answer: (D) refers to the difference between current asset and Current liabilities. (D) 14.44 (A) 20,00,000 The optimal level of working capital is that which provides a 2:1 ratio of current assets to current liabilities. Permanent Working Capital. (D) 0.95 D) firm uses no equity in its capital structure. (A) 72 days Credit Sales = 24,00,000 If its average collection period was 36 days, its ending accounts receivable balance is closest to (Assume a 365 day year.) The CTC Ltd. is attempting to establish a current assets policy. D. amounts that must be held to meet debt covenants. (D) money market instrument and long term securities. Gross profit ratio = 20%. Which of the following is/are method of maximum permissible bank finance as recommended by the Tandon Committee? (D) A new personal computer for the office What relationship exists between the average collection period and accounts receivable turnover? Stock = ? Which of the following is relevant while planning for working capital requirement? y = 1000 In deciding the appropriate level of current assets for the firm, management is confronted with Creditors Turnover Ratio =\(\frac{11,00,000}{80,000}\) = 13.75, Question 105. (D) 49,41,813 (B) 9,90,000 they are the portion of current assets that fluctuates or varies in relation to the seasonal or cyclical movement of sales, they are the portion of the current assets that accumulates and remains fixed through the operating cycle, refers to short-term debt that arises from the normal course of business operation, refers to debt that arises not from ordinary business activities but from borrowings from bank loans, it is the sum of permanent current assets and fixed assets, the amount of investment required to take care of fluctuations in business activity or needed to meet fluctuations in demand consequent upon changes in production and sales as a result of seasonal changes, Personal Finance Unit 4 Lesson 3: Financial P, Abortion, Euthanasia & Assisted Reproduction, Fundamental Financial Accounting Concepts, Christopher Edmonds, Frances M McNair, Philip R. Olds, Thomas P. Edmonds, Carl S Warren, James M Reeve, Jonathan E. Duchac, James F. Sepe, J. 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