What is meant by variable working capital ? Working capital is essentially the capital that is required for a business to run on a regular basis. Gross working capital means an amount of funds invested in the various forms of current assets in total. 5. What is meant by Gross working capital ? Multiple Choice Questions: 1. Net Working Capital:The term “Net Working Capital” has been defined in … Thus the gross working capital is the capital invested in total current assets of the enterprise. 6. ‘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. 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. The ideal position is to It is the difference between total revenue earned from […] These are assets that we repeatedly use over a long period. Gross Working Capital vs Net working Capital . 2. 7. 2. 1. In the broad sense, the term working capital refers to the gross working capital and represents the amount of funds invested in current assets. Managing short-term debts 5. 3. 2 working capital missteps to avoid. Meanwhile, the US and Russia have some of the lowest amount of gross working capital at 40-43% of sales. A letter of credit is issued by a bank an the behalf of its customers. Question 40. 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. 65. What is meant by core current assets ? Percentage of Sales Method: It is a traditional and simple method of determining the level of working capital and its components. (c) Change in Working Capital, (d) Inflation effect. Students can solve NCERT Class 12 Accountancy Accounting Ratios MCQs Pdf with Answers to know their preparation level. Gross working capital refers to the total current asset quantum possessed by a company at any given point in an accounting year. Once you have completed the test, click on 'Submit Answers for Grading' to get your results. Working capital is the difference between a company's current assets and current liabilities. Gross working capital means amount of total current assets. Ans. 66. The methods are: 1. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. 3. Property is an example of a fixed asset. 2. d) Issue of capital will mean increase working capital. Working capital of a company is one of the most important measures in any financial statement that is also easy to calculate. 1- Quantitative or Gross Working Capital Concept; According to this concept Working capital is the total of the entire current asset. For example, during inflation prices of raw material, wages also rise resulting in increase in working capital requirements. (B) Reasonable working capital reserve treated as unavailable. 4. List out the various kinds of working capital. ADVERTISEMENTS: The following points highlight the top three methods of working capital estimation. 8. Having a cash reserve 4. Financing permanent inventory buildup with long-term debt is an example of an aggressive working capital policy. What is the concept of working capital ? Fixed assets are tangible assets that we cannot convert into cash easily. Free PDF Download of CBSE Accountancy Multiple Choice Questions for Class 12 with Answers Chapter 14 Accounting Ratios. Working capital can be negative if current liabilities are greater than current assets. f) When one account is current and another a non-current it results in flow of funds. 7. In Capital Budgeting, Sunk cost is excluded because it is: (a) of small amount, It includes cash on hand, accounts receivable, inventory and short-term investments. A measure of total investment. 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 >> Net Profit Ratio Signifies:(a) Operational Profitability, (b) Liquidity Position,(c) Big-term Solvency,(d)Profit for Lenders. Explain the concept of operating cycle. 9. In this method, working […] This … It is a reflection of the current financial condition of a company that enables investors to know about the health (financial) of a company. What can working capital be used for? Operating Cycle/Turnover of Working Capital : Turnover means speed with which the working capital is converted into cash by sale of goods. working capital is known as the circulating capital as it circulates in the business just like blood in the human body.” 1. 2. Ans. Regression Analysis Method 3. It is also called “Sales Profit”. 8. Under inflationary conditions the same level of inventory will require _____ investment in working capital. The worthiness of an organisation’s working capital is subject to the industry in which it engages, its link with its suppliers and customers. 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. The uses of working capital are: 1. e) Goodwill is a non-current transaction. Gross working capital by country of domicile is shown in Figure 17. There is a _____ between the volume of sales and the size of the working capital of a firm. Liabilities are not included in this calculation, so gross working capital offers only a … 66. 64. Working capital is the amount of cash a business can safely spend. China has the largest gross working capital at 75% of sales, followed by Italy. This activity contains 10 questions. Ans. Increased. Trading organization requires less working capital. 62. Working capital may mean Gross Working Capital or Net Working Capital. We can also use the term ‘ fixed investment ‘ with the same meaning. “net present value ”is the best method of evaluation of capital budgeting project. Gross working capital does not account for current liabilities, but is simply the measure of total cash and cash equivalent on hand. Capital intensive industries require _____ amount of working capital. Multiple-choice questions Try the multiple choice questions below to test your knowledge of this chapter. Operating Cycle Method. Maintaining an optimum level of inventory 2. This implies that profit before any deductions is called Gross profit. Gross Working Capital Cash and short-term assets expected to be converted to cash within a year. During the year, Mason Company’s current assets increased by $120,000, current liabilities decreased by $50,000, and net working capital Working capital (abbreviated WC) is a financial metric which represents operating liquidity available to a business, organization, or other entity, including governmental entities. 68. » 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 In finance, "working capital" means the same thing as current assets minus current liabilities. g) Any transaction that increases working capital is an application of fund. What is Net working capital ? Paying creditors on a timely basis 3. Try this amazing MCQ On Working Capital Management quiz which has been attempted 3787 times by avid quiz takers. It thus includes investment in the country by companies owned by non-residents, and excludes investment abroad by resident firms. 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. 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. This view places more emphasis on the quantitative aspect of working capital rather than its Qualitative aspect. It makes up all those assets which can be readily converted into cash within an accounting period. Inflation : Working capital requirement is also determined by price level changes. A reasonable working capital reserve is treated as unavailable. 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 is equal to current assets. 63. Much of the discrepancy by market is likely due to the composition of companies. 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 Accountancy MCQs for Class 12 Chapter Wise with Answers PDF Download was Prepared Based on Latest Exam Pattern. Accounting Ratios are important tools used by (a) Managers, (b) Researchers,(c)Investors, (d) All of the above. Positive direct correlation. It's commonly defined as current assets minus current liabilities. 1. 63. Gross Profit Vs Operating Profit Gross Profit The word Gross means “before any deductions”. Gross Working Capital Gross working capital is the total amount of a company's current assets. Percentage of Sales Method 2. Gross Working Capital: It refers to the firm’s investment in total current or circulating assets. Capital structure influence risk &return of the shareholders. c) Purchase of plant will mean decrease in working capital. Define working capital. Difference between gross profit and operating profit can be understood from their point of origin, deductions (if any), etc. Higher. 69. 67. Businesses use the calculation of gross working capital to measure cash flow. Working capital is a measure of the operational efficiency, liquidity and short-term financial health or solvency of the company. Also explore over 113 similar quizzes in this category. Gross Working Capital is equal to Current Assets and Net Working Capital is equal to Current Assets less Current Liabilities. 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. 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. Working capital represents the operating liquidity available to a business organization. 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) … Profit gross profit the word gross means “ before any deductions is gross. In capital budgeting, Sunk cost is excluded because it is a _____ between the volume of sales followed! Wise with Answers to know their preparation level to calculate before any deductions ” the term ‘ fixed investment with... 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