(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
Explanation
(a) Explanation of Current Assets with examples
(a) current asset consists of those resources of a business that can easily be changed into cash for example stock, debtors, bill, receivable including cash at bank and cash in hand.
(b) Uses of working capital:
(i) it is used to determine whether the business can meet its financial obligations.
(ii) It serves as a check against over trading.
(iii) It helps to determine the solvency of a business
(iv) It is used in the day to day running of the business.
(c) (i)Calculation of Current Liabilities
Current Liabilities of Zig Stores # Creditors 60,000 Bank overdraft 10,000 70,000
(iii) Calculation of Current Assets
Current Asset of Zig Stores Stocks 76,000 Debtors 50000 Cash in hand 20,000 N146,000
Calculation of Zig Stores Working Capital Current Assets Less Current Liabilities Current Assets # stock 76,000 Debtors 50,000 Cash in hand 20,000 146,000 Less current liabilities creditors 60,000 Bank overdraft 10,000 (70,000) #76,000