Theory question 109
Business CalculationsCommerce 2 (answer any five questions)
The state of affairs of Danchukwu Enterprises for the year ended 30th September, 1997 shows the following:
Capital N90,000.00
Creditors N22,000.00
Vehicles N50,000.00
Furniture & Fittings N20,000.00
Cash in hand N18,000.00
Stock N24,000.00
(a) What is Danchukwu's working capital, using the above information?
(b) Mention four uses of working capital.
(c) Differentiate current capital from mixed capital.
Show the model answer
(a) Working capital = current assets − current liabilities = (cash N18,000 + stock N24,000) − creditors N22,000 = N42,000 − N22,000 = N20,000.
(b) Any four: buying stock/raw materials; paying wages and salaries; paying running expenses such as rent, electricity, transport; paying creditors and meeting short-term debts; granting credit to customers; meeting emergencies.
(c) Current (circulating) capital is capital used for day-to-day running and constantly changing form – cash, stock and debtors. Mixed capital is the combination of fixed and current capital in a business, i.e. the total of fixed assets and current assets used together to run it.
Show the working in (a): only cash and stock are current assets; vehicles and furniture are fixed.