There is a _____ between the volume of sales and the size of the working capital of a firm. Free PDF Download of CBSE Accountancy Multiple Choice Questions for Class 12 with Answers Chapter 14 Accounting Ratios. 2. Increased. A reasonable working capital reserve is treated as unavailable. d) Issue of capital will mean increase working capital. Gross Working Capital vs Net working Capital . Property is an example of a fixed asset. We can also use the term ‘ fixed investment ‘ with the same meaning. Ans. Gross Working Capital: It refers to the firm’s investment in total current or circulating assets. 1- Quantitative or Gross Working Capital Concept; According to this concept Working capital is the total of the entire current asset. Gross working capital means an amount of funds invested in the various forms of current assets in total. The worthiness of an organisation’s working capital is subject to the industry in which it engages, its link with its suppliers and customers. 63. What is Net working capital ? Maintaining an optimum level of inventory 2. 7. Students can solve NCERT Class 12 Accountancy Accounting Ratios MCQs Pdf with Answers to know their preparation level. c) Purchase of plant will mean decrease in working capital. Businesses use the calculation of gross working capital to measure cash flow. Capital intensive industries require _____ amount of working capital. “net present value ”is the best method of evaluation of capital budgeting project. ADVERTISEMENTS: The following points highlight the top three methods of working capital estimation. Having a cash reserve 4. 7. What is meant by variable working capital ? In this method, working […] What can working capital be used for? Gross working capital is equal to 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. g) Any transaction that increases working capital is an application of fund. 8. It's commonly defined as current assets minus current liabilities. 2 working capital missteps to avoid. It is also called “Sales Profit”. 4. Working capital of a company is one of the most important measures in any financial statement that is also easy to calculate. 69. 2. Percentage of Sales Method 2. This implies that profit before any deductions is called Gross profit. In finance, "working capital" means the same thing as current assets minus current liabilities. 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 >> Question 40. Ans. Working capital is a measure of the operational efficiency, liquidity and short-term financial health or solvency of the company. 65. Trading organization requires less working capital. 6. Higher. Gross Working Capital is equal to Current Assets and Net Working Capital is equal to Current Assets less Current Liabilities. During the year, Mason Company’s current assets increased by $120,000, current liabilities decreased by $50,000, and net working capital 62. Meanwhile, the US and Russia have some of the lowest amount of gross working capital at 40-43% of sales. 64. Managing short-term debts 5. 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. 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 » 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 Inflation : Working capital requirement is also determined by price level changes. Under inflationary conditions the same level of inventory will require _____ investment in working capital. 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. 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. Liabilities are not included in this calculation, so gross working capital offers only a … e) Goodwill is a non-current transaction. The ideal position is to Gross working capital does not account for current liabilities, but is simply the measure of total cash and cash equivalent on hand. Operating Cycle Method. This view places more emphasis on the quantitative aspect of working capital rather than its Qualitative aspect. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Also explore over 113 similar quizzes in this category. working capital is known as the circulating capital as it circulates in the business just like blood in the human body.” 1. China has the largest gross working capital at 75% of sales, followed by Italy. ‘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. Ans. Gross working capital means amount of total current assets. What is meant by Gross working capital ? This … Accounting Ratios are important tools used by (a) Managers, (b) Researchers,(c)Investors, (d) All of the above. Accountancy MCQs for Class 12 Chapter Wise with Answers PDF Download was Prepared Based on Latest Exam Pattern. It makes up all those assets which can be readily converted into cash within an accounting period. Thus the gross working capital is the capital invested in total current assets of the enterprise. Gross working capital refers to the total current asset quantum possessed by a company at any given point in an accounting year. Gross Working Capital Cash and short-term assets expected to be converted to cash within a year. 67. It thus includes investment in the country by companies owned by non-residents, and excludes investment abroad by resident firms. Working capital is essentially the capital that is required for a business to run on a regular basis. 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. A measure of total investment. 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”. Regression Analysis Method 3. 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. 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