Question

Question 2: A company wants to get its working capital calculated by you. You are given the following estimates for the year 2020 In addition to that add 5 percent to your figures for contingencies. Calculate the average amount of working capital required for the year 2020.

Assets and Liabilities		Estimated Amount
		for 2020 in OMR
Cash in hand		5000
Average amount backed up for stocks
Stocks of finished goods		5000
Stock of work in progress		3200
Stock of raw materials		1300
Average credit given
Inland sales -- 6 weeks credit Export Sales -- 7 weeks credit		50000 10500
Average time lag in payment of outgoings
Wages	-- 1.5 weeks	15000
Rent	-- 2 months	3000
Creditors	-- 3.5 months	2500
Salaries	-- 0.5 month	1800
Miscellaneous Expenses – 1 month		800
Payment in advance/PREPAID EXPENSES
Sundry Expenses		5600

Solution:

Answer 1

Average amount of working capital required for the year 2020:

S.No.	Particulars	Calculations	Amount in OMR
A.	CURRENT ASSETS
	Cash in hand	-	5000
	Closing Stock
	a) Stock of finish goods	-	5000
	b) Stock of work-in-progress	-	3200
	c) Stock of Raw materials	-	1300
	Debtors
	a) Inland Debtor= (Inland sales*Average credit period)/ total weeks in a year	(50000*6)/ 52=5769.23	5769.23
	b) Export Debtors= (Export sales*Average credit period)/ total weeks in a year	(10500*7)/ 52= 1413.462	1413.462
	Total Current Assets [A]		21682.692
B.	CURRENT LIABILITIES
	Outstanding Wages= (Total wages* Average Time Lag) / Total weeks in a year	(15000*1.5) / 52 = 432.692	432.692
	Outstanding Rent= (Total Rent* Average Time Lag) / Total months in a year	(3000*2) / 12 = 500	500
	Creditors (Note: We have assumed that the creditors are given at the end of the period rather than assuming it to the purchase for the year. If students are assuming it the purchase then the creditor can be determined for the 3.5 months period by the same method as we did above.)	-	2500
	Outstanding Salary (Total Salary* Average Time Lag) / Total months in a year	(1800*0.5) / 12 = 75	75
	Total Current Liabilities [B]		3507.692
C.	WORKING CAPITAL= [A] - [B]	21682.692 - 3507.692 = 18175	18175