Q1. Why is working capital called circulating capital ? (4 marks)
Ans. Working capital is called the “Changing” or “Circulating Capital”, since the money circulates in various forms of current assets in a continued manner. For example, funds once tide up in the form of raw material are later converted into the form of finished goods which are ultimately sold.
Q2. How do we calculate the total cost of production ? (4 marks)
Ans. Total cost of production is calculated annually. In these various assets, like current assets and fixed assets, are those assets which are purchased to be used in the operations of the business, not for sale. It is used over the entire life of the project. For distributing this equally on annual basis, depreciation is calculated on various assets at prescribed rates. This depreciation is added with recurring expenditure and interest on total investment to calculate the total cost of production.
Q3. 200 brooms are proposed to be produced per week by a firm and for that ` 2,000 are needed for raw materials, ` 1,000 for wages and other changes. If it takes three weeks to receive the payments on the sales, then calculate working capital. (4 marks)
Ans. The money spent during the first week comes only at the end of fourth week.
Working capital is needed for four weeks.
Working capital = (` 2,000 + 1,000) × 4 weeks
= ` 3,000 × 4
= ` 12,000
Q4. Differentiate between Gross working capital and Net working capital. (4 marks)
Ans.
S. No. | Gross Working Capital | Net Working Capital |
(i) | This refers to investments in all current assets. | This refers to excess of current assets over current liabilities. |
(ii) | These current assets get converted into cash within an accounting year. | Current liabilities are to be paid within an accounting year. |
(iii) | Examples : Cash in hand, debtors, etc. | Examples : Bills payables, creditors, etc. |
Q5. Distinguish between fixed capital and working capital. (4 marks)
Ans.
Basis | Fixed Capital | Working Capital |
Need | It is needed for meeting long-term requirement of the enterprise. | It is needed for short-term requirement of the enterprise. |
Flexibility | It is flexible only upto the point when the investment is not made | It is flexible as it can be increased or decreased as per the requirements. |
Examples | It is needed for acquiring fixed assets like land, building, etc. | It is needed for payment for current assets like wages to labour, transportation, etc. |
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1. What is business arithmetic and why is it important in entrepreneurship? |
2. How can business arithmetic help entrepreneurs in managing their finances? |
3. What are some key concepts covered in business arithmetic? |
4. How can entrepreneurs benefit from understanding business arithmetic? |
5. Where can entrepreneurs learn and improve their business arithmetic skills? |
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