The state of affairs of Danchukwu Enterprises for the year ended 30th September, 1997 shows the following: Capital 90,000.00 Creditors 22,000.00 Vehicles 50...

Answer Details

(a) Danchukwu's working capital

Working capital is the excess of current assets over current liabilities.

Current assets: Cash in hand \(18{,}000\) + Stock \(24{,}000 = 42{,}000\).
(Vehicles \(50{,}000\) and Furniture & Fittings \(20{,}000\) are fixed assets; Capital is a source of funds, not an asset.)

Current liabilities: Creditors \(= 22{,}000\).

\[\text{Working capital} = \text{Current assets} - \text{Current liabilities}\]\[= 42{,}000 - 22{,}000 = \mathbf{N20{,}000.00}\]

(b) Four uses of working capital

• To purchase stock (goods) for resale.
• To pay wages and salaries of workers.
• To meet day-to-day running expenses such as rent, electricity and transport.
• To pay short-term creditors and other current liabilities as they fall due.

(c) Difference between current (circulating) capital and fixed capital