WORKING CAPITAL

Example

As of December 31, 2022, XYZ Corporation has the following financial information. Calculate working
capital

Current Assets:

Cash: $50,000

Accounts Receivable: $30,000

Inventory: $20,000

Short-term Investments: $10,000

Current Liabilities:

Trade Payable: $15,000

Short-term Loans: $25,000

Accrued Expenses: $5,000

Calculate working capital

Cash CA 10 000
Trade receivable CA 5000
Inventory CA 8000
Short term investment CA 2000
Trade payables CL 15000
Short term loan CL 1200
Accrued expenses CL 6000
 PRACTICE QUESTIONS

1. The Following are the extracts from the balance sheet of a company as on 30 June 2022. Compute
the additional working capital required by the company for the year ending 30,June 2023

Non current assets 12,50,000

Plant and machinery 7,50,000 20,00,000

Current Assets
stock 20,00,000
trade receivables 7,50,000
cash and bank 5,00,000
32 50 000
less current liabilities :
trade payables 850 000
Taxation 2,00,000
bank overdraft 3,50,000
Bills payable 400,000
18,00,000
32 50 000 - 18 00 000 14 50 000
working capital
34 50,000

Additional Information

1. It is estimated that sales will increase by 25 % next year

2. Maximum amount of overdraft that can be availed will be only $ 400000
3. There will be no increase in the liability of tax.
4. There will be no increase in the amount of cash and bank balance
2. Prepare an estimate of working capital requirement from the following information of a trading
business (ill 9)

Annual sales 100 000 units

Selling price 8 per unit
Percentage of net profit on sales 25 %
Average credit period allowed to customers (TR/ DEBTORS) 8 weeks
Average credit period allowed by suppliers (TP) 4 weeks
Average stock holding in terms of sales requirement 12 weeks
Allow 10 % on contingencies
 8-11-2023

3. From the following information you are required to male an assessment of the average amount of
working capital requirement of AB Ltd (ill 10)

Average period Estimate for the

of credit year
Purchase of material 6 weeks 26,00000
Wages outstanding 1.5 week 19 50,000
Overheads :
Rent rates outstanding 6 MONTHS 100 000
Salaries outstanding 1 month 800,000
Other overheads outstanding 2 months 750,000
Sales ( cash ) Nil 200,000
Sales ( credit ) 2 months 60,00000
Average amount of stock 400, 000

4. From the following information given below , you are required to prepare an estimate of working
capital requirement

Elements of cost

Material 40 %

Direct labour 20 %

Overhead cost 20 %

Following particulars are available

a) It is proposed to maintain a level of activity of 200,000 units

b) Selling expenses is $ 12 per unit
c) Raw materials are expected to remain in store for an average of one month
d) Materials in process on an average of half a month and it is assumed to be consisting of raw
material , labour and overhead (M,L OH )
e) Finished goods are required to be in stock for an average period of one month (M,L OH )
f) Credit period allowed to debtors is 2 months
g) Credit period allowed by suppliers is one month
Show the statement of working capital requirement
5. A proforma cost sheet of a company provides the following information ( ill 14 )

Elements of cost

Amt per unit

Raw material 80
Direct labour ( wages) 30
Overheads 60
Total cost 170
Profit 30
Selling price 200

The following further information are available

Raw materials are in stock on an average for one month . Work in progress for half a month . Finished
goods are in stock on average for one month

Credit is allowed by suppliers is one month. Credit allowed to customers is 2 months. Lag in payment
of wages is 1.5 weeks .Lag in payment of expenses is one month

¼ of output is sold against cash. Cash in hand and at bank is expected to be $ 25000 . You are required
to prepare a statement showing working capital needed to finance a level of activity of 104 000 units of
production

You may assume that production is carried on evenly through out the year, wages and overhead accrue
similarly and a time perio2/52 d of 4 weeks is equivalent to a month

¼ of output is sold against cash = cash sale

¾ credit sale – trade receivable (debtors )

Once we sell finished goods on credit , TR arises . So finished goods comprises of M,L OH