Managing short-term debts 5. Try this amazing MCQ On Working Capital Management quiz which has been attempted 3787 times by avid quiz takers. This activity contains 10 questions. Ans. Also explore over 113 similar quizzes in this category. Once you have completed the test, click on 'Submit Answers for Grading' to get your results. Working capital turnover ratio can be determined by: a) (Gross Profit/Working capital) b) (Cost of goods sold/Net sales) c) (Cost of goods sold/Working capital) d) … 8. Trading organization requires less working capital. Increased. It is also called “Sales Profit”. d) Issue of capital will mean increase working capital. 1. » MCQs » Accounting Multiple Choice Questions#1 1) We can say that the business is in profit, when: A) Assets exceed Expenditure B) Income exceeds Liabilities C) Income exceeds Expenditure D) Income exceeds Liabilities 2) According to the double entry system of accounting, an account that obtains benefit is: A) Credit B) Debit Ans. The uses of working capital are: 1. Liabilities are not included in this calculation, so gross working capital offers only a … Ans. Maintaining an optimum level of inventory 2. (B) Reasonable working capital reserve treated as unavailable. What is meant by Gross working capital ? (c) Change in Working Capital, (d) Inflation effect. What is meant by variable working capital ? Working capital is a measure of the operational efficiency, liquidity and short-term financial health or solvency of the company. c) Purchase of plant will mean decrease in working capital. This implies that profit before any deductions is called Gross profit. Working capital represents the operating liquidity available to a business organization. Net Profit Ratio Signifies:(a) Operational Profitability, (b) Liquidity Position,(c) Big-term Solvency,(d)Profit for Lenders. Having a cash reserve 4. A reasonable working capital reserve is treated as unavailable. Working capital may mean Gross Working Capital or Net Working Capital. Businesses use the calculation of gross working capital to measure cash flow. What is the concept of working capital ? Paying creditors on a timely basis 3. Working capital can be negative if current liabilities are greater than current assets. Gross Profit Vs Operating Profit Gross Profit The word Gross means “before any deductions”. Capital intensive industries require _____ amount of working capital. Financing permanent inventory buildup with long-term debt is an example of an aggressive working capital policy. Gross Working Capital: It refers to the firm’s investment in total current or circulating assets. Net Working Capital:The term “Net Working Capital” has been defined in … These are assets that we repeatedly use over a long period. Gross Working Capital Gross working capital is the total amount of a company's current assets. It is a measure of a company’s liquidity and its ability to meet short-term obligations as well as fund operations of the business. 9. A proposal is not a Capital Budgeting proposal if it: (a) is related to Fixed Assets, (b) brings long-term benefits, (c) brings short-term benefits only, (d) has very large investment. Net Working Capital (NWC) is the difference between a company's current assets (net of cash) and current liabilities (net of debt) on its balance sheet. The ideal position is to The methods are: 1. There is a _____ between the volume of sales and the size of the working capital of a firm. It is the difference between total revenue earned from […] This … Don’t confuse short-term working capital needs and longer-term, permanent requirements; While it can be tempting to use a working capital line of credit to purchase machinery or real estate or to hire permanent employees, these expenditures call for different kinds of financing. 69. f) When one account is current and another a non-current it results in flow of funds. A letter of credit is issued by a bank an the behalf of its customers. 62. Gross working capital means amount of total current assets. Gross working capital is equal to current assets. Working capital is essentially the capital that is required for a business to run on a regular basis. Accounting Ratios are important tools used by (a) Managers, (b) Researchers,(c)Investors, (d) All of the above. working capital is known as the circulating capital as it circulates in the business just like blood in the human body.” 1. 8. g) Any transaction that increases working capital is an application of fund. Percentage of Sales Method: It is a traditional and simple method of determining the level of working capital and its components. What can working capital be used for? This view places more emphasis on the quantitative aspect of working capital rather than its Qualitative aspect. The working capital over total assets ratio, sometimes referred to as the net working capital ratio, measures the net liquid assets of a business as a percentage of it’s total assets. Fixed assets are tangible assets that we cannot convert into cash easily. Operating Cycle Method. What is Net working capital ? 5. Accountancy MCQs for Class 12 Chapter Wise with Answers PDF Download was Prepared Based on Latest Exam Pattern. Under inflationary conditions the same level of inventory will require _____ investment in working capital. 3. During the year, Mason Company’s current assets increased by $120,000, current liabilities decreased by $50,000, and net working capital Much of the discrepancy by market is likely due to the composition of companies. Operating Cycle/Turnover of Working Capital : Turnover means speed with which the working capital is converted into cash by sale of goods. We can also use the term ‘ fixed investment ‘ with the same meaning. 63. In finance, "working capital" means the same thing as current assets minus current liabilities. Fixed capital is capital or money that we invest in fixed assets.In other words, money that we invest in assets of a durable nature. Positive direct correlation. Question 40. 63. Regression Analysis Method 3. 64. In the broad sense, the term working capital refers to the gross working capital and represents the amount of funds invested in current assets. Students can solve NCERT Class 12 Accountancy Accounting Ratios MCQs Pdf with Answers to know their preparation level. List out the various kinds of working capital. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. It makes up all those assets which can be readily converted into cash within an accounting period. ‘Gross’ indicates that it is measured without subtracting any allowance for capital consumption; ‘domestic’ that it refers to investment in the country regardless of ownership. 65. 7. 67. Gross Working Capital Cash and short-term assets expected to be converted to cash within a year. Gross Working Capital is equal to Current Assets and Net Working Capital is equal to Current Assets less Current Liabilities. Working capital is the difference between a company's current assets and current liabilities. Any working capital reserve is reasonable if it does not exceed 5 percent of the actual working capital expenditures of the issuer in the fiscal year before the year in which the determination of available amounts is The ratio is an indicator of the short term liquidity and financial strength of the business and indicates it’s ability to finance short term obligations. Gross working capital by country of domicile is shown in Figure 17. Difference between gross profit and operating profit can be understood from their point of origin, deductions (if any), etc. 2 working capital missteps to avoid. Gross Working Capital vs Net working Capital . Multiple-choice questions Try the multiple choice questions below to test your knowledge of this chapter. Working capital (abbreviated WC) is a financial metric which represents operating liquidity available to a business, organization, or other entity, including governmental entities. Free PDF Download of CBSE Accountancy Multiple Choice Questions for Class 12 with Answers Chapter 14 Accounting Ratios. Gross working capital means an amount of funds invested in the various forms of current assets in total. 1. 2. 2. Working capital of a company is one of the most important measures in any financial statement that is also easy to calculate. In Capital Budgeting, Sunk cost is excluded because it is: (a) of small amount, Capital structure influence risk &return of the shareholders. 66. China has the largest gross working capital at 75% of sales, followed by Italy. Gross working capital refers to the total current asset quantum possessed by a company at any given point in an accounting year. e) Goodwill is a non-current transaction. The worthiness of an organisation’s working capital is subject to the industry in which it engages, its link with its suppliers and customers. “net present value ”is the best method of evaluation of capital budgeting project. Inflation : Working capital requirement is also determined by price level changes. ADVERTISEMENTS: The following points highlight the top three methods of working capital estimation. It is a reflection of the current financial condition of a company that enables investors to know about the health (financial) of a company. Gross working capital does not account for current liabilities, but is simply the measure of total cash and cash equivalent on hand. Define working capital. It's commonly defined as current assets minus current liabilities. 1- Quantitative or Gross Working Capital Concept; According to this concept Working capital is the total of the entire current asset. In this method, working […] 2. Higher. Working capital is the amount of cash a business can safely spend. Explain the concept of operating cycle. Thus the gross working capital is the capital invested in total current assets of the enterprise. MEANING OF WORKING CAPITAL:Gross Working Capital, Net Working Capital Aspects of Financial Management:WINNING THE CASH FLOW WAR, The Realization Concept: RECRUITMENT, SELECTION AND TRAINING:Job Description, Job Specification >> Percentage of Sales Method 2. Current assets are those assets which are bought in the ordinary course of business and converted into cash within a short period which is normally one accounting year. 2. For example, during inflation prices of raw material, wages also rise resulting in increase in working capital requirements. 66. It includes cash on hand, accounts receivable, inventory and short-term investments. Property is an example of a fixed asset. A measure of total investment. 3. What is meant by core current assets ? 7. Multiple Choice Questions: 1. 4. Meanwhile, the US and Russia have some of the lowest amount of gross working capital at 40-43% of sales. It thus includes investment in the country by companies owned by non-residents, and excludes investment abroad by resident firms. 6. 68. Questions below to test your knowledge of this Chapter the shareholders s in... Volume of sales, followed by Italy circulating assets the shareholders capital cash and cash equivalent on.. Turnover means speed with which the working capital a Reasonable working capital, ( d ) of! Aspect of working capital and its components may mean gross working capital at 40-43 % of and. Russia have some of the enterprise application of fund of the shareholders the human ”! Financial statement that is required for a business to run on a regular basis try the multiple choice below. To be converted to cash within an accounting period inventory and short-term assets to! 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