Question

While calculating average working capital "undrawn" profit how to treat?

Answer 1

Answer:

sorry I can't understand this question

Explanation:

because my answer is wrong sorry

Answer 2

Undrawn profits are not considered in the working capital as the profit may not always be a source of working capital.

• Undrawn profits act as a reserve where excess income can be accrued to daily uses, subject to lower corporate taxation levels.
• It is important for the purpose of evaluating work capital generated by net profit  to change the net income tax gains, dividends, drawings etc. Thus, undrawn profit is not treated in the working capital.
• Profits don't necessarily need to be a source of working capital funding. These can be used for other purposes such as purchasing fixed assets, repaying long-term loans etc.