(a) Explain current assets giving two examples.... | WAEC SSCE - Commerce - 2014 (Essay)

Question 1 Report

(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.
You are required to calculate Zig Stores:

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

(i) current liabilities (ii) current assets (iii) working

Answer

(a) Current assets

Current assets are assets that are held for a short period and can quickly and easily be converted into cash in the ordinary course of business, usually within one year. Their form keeps changing as the business trades.
Two examples: stock (goods for resale) and cash in hand; others are debtors and bank balances.

(b) Two uses of working capital

To buy stock (goods) for resale.
To pay day-to-day running expenses such as wages, rent and short-term creditors.

(c) Zig Stores computations

(i) Current liabilities

Creditors \(60{,}000\) + Bank overdraft \(10{,}000\)

\[= N70{,}000\]

(ii) Current assets

Stocks \(76{,}000\) + Debtors \(50{,}000\) + Cash in hand \(20{,}000\)

\[= N146{,}000\]

(Furniture and fittings \(30{,}000\) and Motor van \(164{,}000\) are fixed assets and are excluded.)

(iii) Working capital

\[\text{Working capital} = \text{Current assets} - \text{Current liabilities}\]\[= 146{,}000 - 70{,}000 = \mathbf{N76{,}000}\]

Read lesson note on Business Capital And Profits (WAEC)

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