Working Capital Management – Financial and Strategic Management MCQBy CACSMockTest / November 24, 2022 0 Working Capital Management – Financial and Strategic Management MCQ 1 / 45 Following is the balance sheet of PBX Ltd. Calculate maximum permissible bank finance by the Third Method of Tandon Committee norms. Assume the level of Core Current Assets to be ₹ 60 lakhs. Liabilities ₹ Lakhs Equity Shares (₹ 10 each) 400 Retained Earnings 1,000 Public Deposits 200 Trade Creditors 160 Bills Payable 200 1,960 Assets ₹ Lakhs Fixed Assets 1,000 Current Assets: Raw Material 200 Work-in-progress 300 Finished Goods 150 Debtors 200 Cash at Bank 110 1,960 (A) ₹ 450 lakhs (B) ₹ 360 lakhs (C) ₹ 315 lakhs (D) ₹ 425 lakhs 2 / 45 If a firm has ₹ 100 in inventories, a current ratio equal to 1.2, and a quick ratio equal to 1.1, what is the firm’s Net Working Capital? (A) ₹ 10 (B) ₹ 100 (C) ₹ 200 (D) ₹ 1,200 3 / 45 Outstanding overheads appearing in the balance sheet are 9,75,000. Lag in payment of overheads is 30 days. Overheads accrue evenly throughout the year. Total overheads incurred by the company are – (A) ₹ 1,17,00,000 (B) ₹ 32,500 (C) ₹ 2,92,50,000 (D) ₹ 1,92,50,000 4 / 45 Total wages for the year of Rakshit Ltd., a listed company are ₹ 64,80,000 out of which ₹ 2,40,000 are paid in cash immediately after they became due.Lag in payment of wages -1 month. If you are appointed to prepare a working capital statement for the company, then how much outstanding wages you will take while preparing a working capital statement? (A) ₹ 5,40,000 (B) ₹ 5,50,000 (C) Not enough data (D) ₹ 5,20,000 5 / 45 Toted ‘cost of sales’ and ‘sales’ of Gama Ltd. is ₹ 3,19,80,000 and ₹ 4,13,40,000 respectively. It makes 20% sales on a cash basis. Debtors are allowed 2 months credit period. If the company calculates working capital on a cash cost basis then debtors are __ (A) ₹ 55,12,000 (B) ₹ 42,12,000 (C) ₹ 42,64,000 (D) ₹ 55,64,000 6 / 45 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 ___ (A) ₹ 57,41,813 (B) ₹ 49,29,313 (C) ₹ 52,29,813 (D) ₹ 49,41,813 7 / 45 Debtors velocity = 3 months Sales = ₹ 25,00,000Bills receivable & Bills payable were ₹ 60,000 and ₹ 36,667 respectively.Sundry debtors =? (A) ₹ 6,25,000 (B) ₹ 5,25,000 (C) ₹ 5,65,000 (D) ₹ 6,65,000 8 / 45 No. of operating cycle in a year=4.5No. of days in year = 360 daysWorking capital = 8,40,000Operating cost =? (A) ₹ 35,00,000 (B) ₹ 37,80,000 (C) ₹ 36,40,000 (D) ₹ 38,80,000 9 / 45 NS Ltd. gives the following information:Current Ratio = 2.4Quick Ratio =1.0Stock = ₹ 5,60,000Current Assets = ? (A) ₹ 9,60,000 (B) ₹ 6,90,000 . (C) ₹ 4,00,000 (D) ₹ 4,60,000 10 / 45 The operating cycle days of Ramji Ltd. is 167 days. Other details are as follows:Raw material stock velocity 79 daysDebtors collection period 70 daysWIP conversion period 3 6 daysFinished goods 29 daysconversion periodCreditors payment period =? (A) 47 days (B) 94 days (C) 52 days (D) 59 days 11 / 45 S Ltd. gives the following information:Networking capital ₹ 2,80,000Current ratio 2.4Liquid ratio 1.6Current Assets =? (A) ₹ 2,00,000 (B) ₹ 2,80,000 (C) ₹ 4,80,000 (D) ₹ 3,60,000 12 / 45 N Ltd. gives the following information:Current Ratio 2.8Total assets ₹ 60,00,000Fixed assets ₹ 32,00,000Current liabilities =? (A) ₹ 28,00,000 (B) ₹ 10,00,000 (C) ₹ 18,00,000 (D) ₹ 12,00,000 13 / 45 Creditors payment period = 60 daysMaterial consumed = ₹ 1,20,000Material purchased in cash = ₹ 10,000Material purchased on = ₹ 90,000 creditCreditors that will appear in balance sheet and working capital statement = ?Note: 1 Year = 360 days (A) ₹ 16,667 (B) ₹ 15,000 (C) ₹ 20,000 (D) ₹ 36,667 14 / 45 KT Ltd.’s opening stock was ₹ 2,50,000 and the closing stock was ₹ 3,75,000. Sales during the year were ₹ 13,00,000 and the gross profit ratio was 25% on sales. Average accounts payable are ₹ 80,000. Creditors Turnover Ratio =? (A) 13.75 (B) 14.33 (C) 13.33 (D) 14.44 15 / 45 Current assets of Z Ltd. are ₹ 3,70,000 which includes stock ₹ 1,00,000 and prepaid expense ₹ 70,000. Its current liability are ₹ 1,60,000 which includes provision for tax ₹ 60,000.Liquid Ratio =? (A) 1.25 (B) 1.52 (C) 1.22 (D) 0.95 16 / 45 From the following data calculate the finished goods conversion period for the years 2019 & 2020.Note: 1 Year = 360 days (A) 29 days & 39 days (B) 39 days & 29 days (C) 25 days & 35 days (D) 35 days & 25 days 17 / 45 Raw material consumption = ₹ 6,48,000Raw material purchase = ₹ 8,42,000Annual cost of production = ₹ 14,42,000Creditors = ₹ 75,000Bills payable = ₹ 25,000Creditors Payment Period = ?Note: 1 Year = 360 days (A) 34 days (B) 43 days (C) 40 days (D) 39 days 18 / 45 Equity ₹ 5,67,500, Reserve & surplus ₹ 3,87,850, total debt ₹ 5,88,778 out of which ₹ 2,88,778 are long term debt, fixed assets are ₹ 11,44,128. (A) 2.48 (B) 1.92 (C) 3.68 (D) 1.33 19 / 45 Opening stock ₹ 1,75,000, Total purchase ₹ 10,75,000 including cash purchase ₹ 1,75,000, total sales ₹ 15,00,000 out of which 2096 are on cash basis. Closing stock is ₹ 1,50,000. Stock turnover ratio =? (A) 7.67 (B) 6.77 (C) 7.76 (D) 7.66 20 / 45 Calculate the working capital from the following data: Particulars ₹ Raw Material Stock 11,70,000 WIP Stock 9,58,750 Finished Goods Stock 26,65,000 Debtors 55,12,000 Cash & Bank 6,00,000 Creditors 17,55,000 Outstanding expenses 14,95,000 (A) 76,75,550 (B) 76,55,750 (C) 75,65,750 (D) 77,55,650 21 / 45 It is understood that a current ratio of _____ for a manufacturing firm implies that the firm has an optimum amount of working capital. (A) 1 (one) (B) 2 (two) (C) 3 (three) (D) 2.5 (two and half) 22 / 45 Which of the following is/are method of maximum permissible (A) [50% of (Current Assets – Core Current Assets)] – Current Liabilities (B) [7596 of (Core Current Assets – Current Assets)] – Current Liabilities (C) [7596 of (Current Assets – Core Current Assets)] – Current Liabilities (D) [8096 of (Current Assets – Core Current Assets)] – Current Liabilities 23 / 45 Which of the following is not correct with the matching strategy? (A) All assets should be financed with permanent long-term capital. (B) Temporary current assets should be financed with temporary working capital. (C) Long-term assets should be Financed from long-term capital. (D) Permanent current assets should be financed with permanent working capital. 24 / 45 Tandon Committee Report on Working Capital relates to norms for (A) Inventory and receivables bank finance as recommended by the Tandon Committee? (B) Gross profit and inventory (C) Receivable, gross profit, and inventory (D) Net profit and receivables 25 / 45 Hardcore working capital is also known as – (A) Hard current assets (B) Core current assets (C) Core current liabilities (D) Hard current liabilities 26 / 45 Permanent working capital – (A) Varies with seasonal needs. (B) Includes fixed assets. (C) Is the number of current assets required to meet a firm’s long-term minimum needs. (D) Includes accounts payable. 27 / 45 _____varies inversely with profitability. (A) Liquidity (B) Risk (C) Gross profit (D) None of the above 28 / 45 To carry on a business, a certain minimum level of working capital is necessary on a continuous and uninterrupted basis. This requirement is referred to as – (A) Permanent working capital (B) Long term working capital (C) Fixed working capital (D) Both (A) and (C) 29 / 45 Current assets are those assets – (A) Which can be sold by the companies. (B) Which are less important from a production angle. (C) Which are held by the companies to pay off current liabilities. (D) Which are converted into cash within a period of one year. 30 / 45 A lower current assets/fixed assets ratio means – (A) Matching/hedging Approach (B) Aggressive current assets policy (C) Riskier current assets policy (D) Conservative current assets pol-icy 31 / 45 Which of the following represents the amount utilized at the time of contingencies? (A) Reserve Working Capital (B) Net working capital (C) Extra working capital (D) Fixed working capital 32 / 45 A conservative policy implies – (A) Greater liquidity and lower risk (B) Greater risk and lower liquidity (C) Negligible risk (D) No risk at all with low liquidity 33 / 45 The aggressive approach covers those policies – (A) Where the firm relies heavily on short term bank finance (B) Seeks to increase dependence on long-term financing. (C) Both (A) and (B) (D) Neither (A) nor (B) 34 / 45 The capital which is needed to meet the seasonal requirements of the business – (A) Gross Working Capital (B) Reserve Margin Working Capital (C) Net working capital (D) Fluctuating Working Capital 35 / 45 Operating cycle is also called as – (A) Working cycle (B) Business cycle (C) Current asset cycle (D) Working capital cycle 36 / 45 One of the important objective(s) of working capital management is/are – (A) To maintain the optimum levels of investment in current assets. (B) To reduce the levels of current liabilities (C) Improve the return on capital employed (D) All of the above 37 / 45 Which of the following statement is correct? (A) A desire to maintain an established dividend policy may affect the volume of working capital. (B) Changes in working capital may bring about an adjustment of dividend policy. (C) Payment of dividend may reduce cash in current assets consider-ably which in turn may reduce the available working capital for the company. (D) All of the above 38 / 45 Initial Working Capital (A) Supplies the funds necessary to meet the current working expenses. (B) Is used to raise the volume of production by improvement or extension of machinery. (C) Is required at the time of the commencement of business (D) Represents the amount utilized at the time of contingencies. 39 / 45 Which of the following method is not used for calculating the working capital cycle? (A) Percentage of sales method (B) Regression analysis method (C) Operating cycle approach (D) Trial and error method 40 / 45 Negative working capital means that – (A) The company has no current assets at all (B) The company currently is unable to meet its short-term liabilities (C) The company has negative earnings before interest and tax (D) The company currently is able to meet its short-term liabilities 41 / 45 Statement I:Maintaining adequate working capital is not just important in the short term. Sufficient liquidity must be maintained in order to ensure the survival of the business in the long term as well. Statement II:Even a profitable business may fail if it does not have the adequate cash flow to meet its liabilities as they fall due. (A) Statement I is correct while Statement II is incorrect. (B) Statement II is correct while Statement I is incorrect. (C) Both Statement I and Statement II Eire correct. (D) Both Statement I and Statement II are incorrect. 42 / 45 For reducing and controlling working capital requirement which of the following step is required to be taken – (A) Increase in manufacturing cycle (B) Increase of credit period allowed by creditors to the extent that does not affect the production. (C) Increase in credit period given to customers (D) All of the above 43 / 45 Which of the following will be considered while calculating working capital?(1) Short Term Advances(2) Stock of WIP(3) Short Term Investments(4) Perpetual inventory policy (A) (2) & (3) (B) (1) & (3) (C) (1),(2)&(3) (D) All of the above except (4) 44 / 45 Working capital = (A) Core current assets less current liabilities (B) Core current assets less core current liabilities (C) Liquid assets less current liabilities (D) Current assets less current liabilities 45 / 45 Working capital is also known as___ (A) Operation capital (B) Operating capital (C) Current assets capital (D) Capital relating to main projects of the company Your score is LinkedIn Facebook Twitter VKontakte Related