Question : Which of the following statements is incorrect?
Option 1: Working Capital = Current Assets - Current Liabilities
Option 2: Current Liabilities = Total Assets - Non-Current Liabilities - Shareholder's fund
Option 3: Working Capital = Equity Share Capital + Reserves & Surplus - Long Term Loan - Non-Current Assets
Option 4: None of the above
Correct Answer: Working Capital = Equity Share Capital + Reserves & Surplus - Long Term Loan - Non-Current Assets
Solution : Answer = Working Capital = Equity Share Capital + Reserves & Surplus - Long Term Loan - Non-Current Assets
Working capital is a measure of a company's short-term financial health. It indicates the ability to pay current liabilities with current assets. Equity, reserves, surplus, and long-term loans are all part of shareholders' funds (financing sources) and non-current assets (long-term investments).
Working Capital = Current Assets - Current Liabilities (This formula directly calculates the difference between what a company can access quickly and what it owes in the short term) Current Liabilities = Total Assets - Non-Current Liabilities - Shareholder’s fund (This formula subtracts long-term financing sources and investments from total assets to arrive at current liabilities). Hence, the correct option is 3.
Question : Which of the following statements is false?
Option 1: Long Term Debts = Debentures + Mortgage Loan
Option 2: Shareholder’s Funds = Equity Share Capital + Pref. Share Capital + Capital Reserve + P&L Balance+ long-term debt
Option 3: Total Assets = Non-Current Assets + Current Assets
Option 1: Total Assets = Fixed Assets + Non-current Investments + Current Assets
Option 2: Long-term Borrowings or Debt = Total Borrowing - Short-term Borrowings
Option 3: Total Assets = Shareholders Funds + Long term Borrowings + Short term Borrowings + Other Current liabilities
Option 4: None of the above.
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