Current Assets and Current Liabilities

Contents in brief:

o Current Assets
o Current Liabilities
o Net Working Capital
o Provision for Contingencies
o Gross/Total Working Capital
o Fluctuating Range of Working Capital
o Minimum Working Capital
o Maximum Working Capital
o Average Working capital
o Some related Ratios

Learning Questions:

 What do you mean by Current assets? Make a comprehensive list of Current

Assets.
 What is meant by Current Liabilities? Cite a few examples of Current Liabilities.
 What is Working capital? How is it determined?
 Write your concepts on:
a) Net Working Capital
b) Gross Working Capital
c) Minimum Working Capital
d) Maximum Working Capital
e) Average Working Capital
f) Working Capital Ratio
g) Current Ratio
h) Quick/Acid Test Ratio

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 Concepts

Current Assets: The assets which are temporary and fluctuating in nature and which
are easily convertible into cash within the shortest possible time would be considered as
Current assets. Here is a comprehensive list of Current assets:

o Cash in Hand/Vault
o Cash at Bank
o Accounts Receivables/Sundry Debtors/Book Debts
o Notes Receivables/Bills Receivables
o Inventory/Stock in Trade
o Merchandise Inventory
o Inventory of Raw Material
o Work in Progress
o Inventory of Finished Goods
o Inventory of Stationery
o Unused Stamps
o Prepaid Expenses/Expenses Paid in Advance
o Accrued Income
o Short Term Investment, etc.

Current Liabilities: The liabilities which are recurring or fluctuating in nature and which are to
be paid off within the shortest possible time would be considered as Current Liabilities. A few
examples of Current Liabilities are given below:

o Bank Overdraft
o Short Term Bank Loan
o Accounts Payables/Sundry Creditors
o Notes Payables/Bills Payables
o Proposed Dividend/Dividend Payable
o Provision for Taxation
o Unearned Revenue/Revenue Received in Advance
o Accrued Expenses/Accruals, etc.

Working Capital: This is the running amount of capital in an organization. The part of the
capital of a business house which is not blocked but working continuously would be treated as
Working Capital. The difference between current assets and current liabilities is called Working
Capital.

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Usually the following steps are followed to determine the amount of Working Capital:

a) All Current Assets are to be added.

b) All Current Liabilities are to be added.
c) The Total of Current Liabilities is to be deducted from the Total of Current Assets
to determine the amount of Working Capital.

Problems on Current Assets and Current Liabilities

Problem No. 01

You are given the following information relating to Padma Ltd.:

Cash in Hand; Cash at Bank; Investment; Bank Loan; Bank Overdraft; Furniture; Plant
and Equipment; Land and Building; Accounts Payables; Accounts Receivables; Notes
Payables; Notes Receivables; Inventories; Work-in-Progress; Inventories of Raw
Materials; Merchandise Inventory; Inventory of Finished Goods; Inventory of
Stationery; Accrued Expenses; Accrued Income; Unearned Revenue; Prepaid Expenses;
Leasehold Property; Freehold Property; Goodwill; Proposed Dividend; Provision for
Taxation; Unused Stamps; Contingent Assets.

Identify Current Assets and Current Liabilities.

Problem No. 02

Identify Current Assets and Current Liabilities from the following items relating to
Meghna Ltd.:

Investment Tk.7,00,000; Cash in Hand Tk.3,00,000; Cash at Bank Tk.2,00,000; Long Term
Bank loan Tk.7,50,000; Bank Overdraft Tk.1,50,000; Accrued Expenses Tk.40,000;
Accrued Income Tk.30,000; Merchandise Inventory Tk.5,50,000; Stationery Inventory
Tk.60,000; Accounts Receivables Tk.4,00,000; Accounts Payables Tk.2,50,000; Notes
Receivables Tk.2,00,000; Notes Payables Tk. 1,50,000; Unused Stamps Tk.10,000; Trade
Marks Tk.10,00,000; Patent Rights Tk.15,00,000; Loose Tools Tk.1,00,000; Vehicles
Tk.19,00,000; Directors’ Fees Tk.3,00,000; Audit Fees Tk.1,50,000.

Determine the amount of Working Capital.

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Problem No. 03

The following information has been taken from the records of Yamuna Ltd. for a
particular period:

Current Assets Tk.12,00,000; Current Liabilities Tk.7,00,000; Provision for Contingencies

Tk.1,00,000.

Determine the amount of Net Working Capital and Gross Working Capital.

Problem No. 04

You are given the following data relating to Surma Ltd.:

Current Assets Tk.10,00,000; Current Liabilities Tk.5,00,000; Provision for Contingencies

20% of Gross Working Capital; Fluctuating Range of Working Capital -10% of Net
Working Capital to +10% of Gross Working Capital.

Required:

a) Net Working Capital;

b) Gross Working Capital;
c) Average Working Capital.

Problem No. 05

a) Current Assets Tk.7,50,000; Current Liabilities Tk.4,00,000; Inventory Tk.1,50,000;

Bank Overdraft Tk.1,00,000. Calculate Current Ratio and Quick Ratio.
b) Current Ratio 2 : 1; Current Assets Tk.6,00,000; Inventory Tk.1,00,000; Bank
Overdraft Tk.50,000. Determine the amount of Working Capital and calculate
Quick Ratio.
c) Quick Assets Tk. 4,50,000; Quick Liabilities Tk. 2,50,000; Inventory Tk. 2,50,000;
Bank Overdraft Tk. 1,50,000. Determine the amount of Working Capital and
calculate Current Ratio.
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