Fred Asamah had the following state of affairs as at 31st December, 1999 Vehicles 82,000 Furniture 15,000 Stocks 38,000 Debtors 25,000 Creditors 30,000 Cash...
Question 1 Report
Fred Asamah had the following state of affairs as at 31st December, 1999
| Vehicles | 82,000 |
| Furniture | 15,000 |
| Stocks | 38,000 |
| Debtors | 25,000 |
| Creditors | 30,000 |
| Cash in hand | 10,000 |
| Bank overdraft | 5,000 |
| Capital | 135,000 |
(a) Calculate: (i) the current assets of the business (ii)current liabilities (iii) its working capital
(b)What is a current asset? (c) State one significance
Answer Details
(a) Calculations
(i) Current assets are the short-lived assets: Stocks, Debtors and Cash in hand.
| Stocks | 38,000 |
| Debtors | 25,000 |
| Cash in hand | 10,000 |
| Current assets | 73,000 |
\[ \text{Current assets} = 38{,}000 + 25{,}000 + 10{,}000 = 73{,}000 \]
(ii) Current liabilities are the short-term debts: Creditors and Bank overdraft.
| Creditors | 30,000 |
| Bank overdraft | 5,000 |
| Current liabilities | 35,000 |
\[ \text{Current liabilities} = 30{,}000 + 5{,}000 = 35{,}000 \]
(iii) Working capital
\[ \text{Working capital} = \text{Current assets} - \text{Current liabilities} = 73{,}000 - 35{,}000 = 38{,}000 \]
(b) What is a current asset?
A current asset is an asset that is held for a short period (usually less than one year) and is either cash or can readily be converted into cash in the ordinary course of business, for example stock, debtors and cash.
(c) One significance
Current assets provide the ready funds needed to meet short-term obligations and to keep the business running smoothly from day to day.
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