MPB

Pointsto Remember

also meant as circulating

capital.
capitalis with the acquisition of raw material for
Working cycle begins
capital receivables. cash and ends
(1) Workingcollection
2) of
withthe importarnttypes of working capital are groSs working capital,,net
Some ofthe
(3) working capital, negative working capital,
capital, positivecapital, etc. worktinagl,
initial working capi
regularworking working capital requirements are - nature of
Factors determining and time
(4) business unit, cost
circulating capital, inflation, etc.
involved in
manufacturing
process, businturnover
ess, size ofof
(5)
Working capital has to be financed trom short term sources of funds
Reserve Bank of India (RBI) is the Central Bank of India.
(6) RBI
requlates the entire banking system through its monetary policy.
(8) RBI frames policies relating to priority sector lending.
(9) RRL decides on concessional interest rates for lending finance to
strategic importance.
certain cen.
(10) RBI indirectly through its chain of commercial banks helps in
activities. corporate finance

Questions for Self-Practice

OBJECTIVE QUESTIONS
() Fillin the blanks:
(1) Working Capital is also called as capital.
(2) management involves managing the
payables and cash. inventory, receivables,
(3) In case of inadequate working capital situation, the firm
runs the risk of
(4) Current assets have a life span and are quickly transformed into
other asset forms.
(5) indicates the length of time between a company's purchasing
materials, entering into stock and receiving the cash from sales of finished
goods.
[Ans.: (1) Net Current Assets; (2) Working Capital; (3) Insolvency: (49) Short
(5) Working Capital Cycle]
(I) State whether the following statements are True or False:
(1) When the processing time is not given, calculation of stock of work-in-progfess
should be ignored. month then
(2) If wages are paid at the beginning of every month for the previous
the period of lag in payment of wages is one month.
 Debtors may be valued at cost of the goods sold on credit or at selling price.
(3)
(4) In the absence of specific instructions while calculating work-in-progress it is
assumed that labour and overheads OcCur evenly.
always.
(5) Provision for contingencies is to be taken at 10% of working capital
working capital during
(6) Seasonal industries like Sugar and Oil require more
season and less working capital during slack seasons.
(7) Adequate working capital ensures credit standing of the firm.
(8) Working capital is estimated for the previous financial year. Materials,
(9) Work-in-progress in working capital includes Average Stock of Raw
Labour and Overheads.
Assets then working
(10) If Liability decreases more than decrease in Current
capital also decreases.
(11) Working capital requirement is high when supply of Raw Material is low.
(12) Under the Gross WorkingCapital Concept, Working Capital = Current Assets.
(13) Gross workingcapital = Current Assets - Current Liabilities,
(14) High Bank overdraft means high working capital.
(15) Temporary working capital is also known as core working capital.
(16) Term loan iSan advance given by bank to its customers. (April 19)
(17) Depreciation is an external source of finance. (April 19)
(18) In case of inadequate working capital situation, the firm runs the risk of
insolvency. (Oct. 19)
(19) A firm using labour oriented technology will require more working capital to pay
labour wages regularly. (Oct. 19)
of
(20) Marketable Securities are temporary short term investments made out
surplus cash balance. (Oct. 19)
liabilities are
(21) Zero working capital is when both current assets and current
equal. (0ct. 19)
True;
[Ans.: (1) True; (2) False; (3) True; (4) True; (5) False; (6) True; (7) False;
(8) False; (9) True; (10) False; (11) True; (12)True; True; (13) False; (14)
(15) False; (16) False; (17) False; (18) True; (19) (20) True; (21) True]
(I) Match the column: Column 'B'
Column A'
(1) Gross Working Capital () Not Considered in calculation of working capital
(2) Net Working Capital (iü) Short Term Funds
(3) Depreciation (ii) ldle Funds
(4) Working Capital Need (iv) Current Assets
(5) Large Working Capital (v) Term Loan
(vi) CA minus CL
[Ans.: (1 - iv); (2- vi); (3 - i); (4- i); (5 - ii)]
(M) Multiple choice questions: years. (April 19)
(0) Public deposits are accepted for a maximum of
(a) 1 (b) 2
(c) 3 (d) 5
guidelines issued by
(<) In India, Commercial Papers are issued as per the
(April 19)
(a) SEBI (b) RBI
(c) Forward Market Commission (d) None of the Above
19)
(3
is the most liquid item of current assets. (Oct.
(a) Cash (b) Stock
(c) Debtors
19)
(9) High tax rates demands amount of Working Capital. (Oct.
(a) less (b) more
(c) none of these
Ans.: (1 -c); (2- b): (3-a); (4 -
b)]