Question 4
The following is the balance sheet of Prestige Textile Distributors.
Assets
Liabilities
Fixed assets
25 000
12 000
Investments
Stock
17000
Trade debtors
22 000
Share capital
Retained earnings
Long-term loan
30 000
8 000
16 000
20 000
5000
6 000
85 000
Trade creditors
Overdraft
Accruals and others
Total
Other debtors
9 000 Cash
Total
85 000
1. Discuss working capital requirement.
2. Show the working capital situation if turnover doubles without change in the
current terms of trade.
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Answer:
1) Working capital requirement is 17000
2) Working capital requirement in case turnover is doubled is 39000
Explanation:
Working capital requirement is difference between the current liabilities and the current assets.
The term current is used for transactions which change with the span of 12 months.
It is assumed that whenever turnover is double effect is given to debtors and retained earnings.
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