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