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Test: Working Capital- 2 - B Com MCQ


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10 Questions MCQ Test - Test: Working Capital- 2

Test: Working Capital- 2 for B Com 2024 is part of B Com preparation. The Test: Working Capital- 2 questions and answers have been prepared according to the B Com exam syllabus.The Test: Working Capital- 2 MCQs are made for B Com 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Working Capital- 2 below.
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Test: Working Capital- 2 - Question 1
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Which of the following factors largely determines the Working Capital requirements of a business concern?

Detailed Solution for Test: Working Capital- 2 - Question 1
The Working Capital requirements of a business concern depend largely on the nature of the business it operates in. Different businesses have different operational cycles and credit policies, which directly impact their Working Capital needs. For instance, a company following a rigid credit policy and dealing only in cash transactions might maintain a lower amount of Working Capital, while a construction company with longer production cycles could require a larger amount of Working Capital.
Test: Working Capital- 2 - Question 2
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What is the primary advantage of the aggressive working capital policy?

Detailed Solution for Test: Working Capital- 2 - Question 2
The aggressive working capital policy involves maintaining a low level of Working Capital, which can lead to lower costs due to reduced interest expenses. However, it's a higher risk approach as it might compromise liquidity. One of the potential benefits is increased profitability, as the business utilizes its resources more efficiently.
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Test: Working Capital- 2 - Question 3
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Under the matching approach of determining the finance mix, how is short-term financing used?

Detailed Solution for Test: Working Capital- 2 - Question 3
In the matching approach, short-term financing is used to finance temporary or variable assets, which are subject to fluctuations in the business cycle. This approach aims to match the expected life of assets with the expected life of the sources of funds. Long-term financing is used for fixed assets and permanent current assets.
Test: Working Capital- 2 - Question 4
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Which working capital policy aims to minimize risk by maintaining a higher level of Working Capital?
Detailed Solution for Test: Working Capital- 2 - Question 4
The conservative working capital policy involves maintaining a higher level of Working Capital to minimize risks associated with unexpected fluctuations in business conditions. This policy is suitable for businesses that experience significant seasonal variations or uncertainties. It prioritizes safety over aggressive profitability.
Test: Working Capital- 2 - Question 5
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Which stage of the operating cycle includes the acquisition of raw materials?
Detailed Solution for Test: Working Capital- 2 - Question 5
The operating cycle of a business consists of various stages, starting with the acquisition of raw materials. This is the "Raw material and storage stage," where the necessary raw materials for production are obtained and stored. The operating cycle continues through other stages like work-in-process, finished goods, debtors collection, and creditors payment.
Test: Working Capital- 2 - Question 6
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Which method estimates Working Capital requirements based on the past relationship between Sales and Working Capital?
Detailed Solution for Test: Working Capital- 2 - Question 6
The percent of sales method estimates Working Capital requirements by analyzing the historical relationship between Sales and Working Capital. By calculating the ratio of Sales to Working Capital from past data, this method provides an estimate of the Working Capital needed for future sales.
Test: Working Capital- 2 - Question 7
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In the operating cycle, what does the Debtors collection stage refer to?
Detailed Solution for Test: Working Capital- 2 - Question 7
The Debtors collection stage of the operating cycle refers to the process of collecting payments from customers who have purchased goods on credit. This stage comes after the production of finished goods and reflects the time taken for customers to settle their outstanding payments.
Test: Working Capital- 2 - Question 8
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Which source of Working Capital is considered an internal source?
Detailed Solution for Test: Working Capital- 2 - Question 8
Retained earnings are profits that a company has earned and chosen to retain within the business rather than distributing them as dividends. This is considered an internal source of Working Capital, as it comes from the company's operations.
Test: Working Capital- 2 - Question 9
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In the finance mix determination, which approach aims to maintain a moderate level of Working Capital based on moderate sales?
Detailed Solution for Test: Working Capital- 2 - Question 9
The moderate approach of determining the finance mix aims to maintain a moderate level of Working Capital in line with the level of sales. This approach strikes a balance between risk and profitability, ensuring that the company has enough liquidity to meet its operational needs.
Test: Working Capital- 2 - Question 10
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What stage marks the end of the operating cycle and involves paying off the company's suppliers?
Detailed Solution for Test: Working Capital- 2 - Question 10
The Creditors payment period stage is the final stage of the operating cycle. In this stage, the company pays off its suppliers for the raw materials and other resources used in the production process. This completes the cycle and starts the process anew with the acquisition of new raw materials.
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