Theory question 108
Business CalculationsCommerce 2 (essay)
(a) Explain current assets giving two examples.
(b) State two uses of working capital.
(c) The state of affairs of Zig Stores as at 31st December, 2009 shows the following (₦):
Furniture and fittings – 30,000
Motor Van – 164,000
Stocks – 76,000
Debtors – 50,000
Creditors – 60,000
Cash in hand – 20,000
Bank overdraft – 10,000
You are required to calculate Zig Stores:
(i) Current liabilities;
(ii) Current assets;
(iii) Working capital.
Note: Show all workings
Show the model answer
(a) Current assets are assets held for a short time that change form in the course of trade and can be turned into cash within a year, e.g. stock, debtors, cash in hand, cash at bank.
(b) Any two: pays day-to-day expenses (wages, rent); buys stock; allows credit to customers; pays short-term debts as they fall due.
(c)(i) Current liabilities = creditors 60,000 + bank overdraft 10,000 = ₦70,000.
(ii) Current assets = stocks 76,000 + debtors 50,000 + cash 20,000 = ₦146,000.
(iii) Working capital = 146,000 − 70,000 = ₦76,000.
Furniture and motor van are fixed assets, so leave them out of (c).