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Difficulty: EasyCapital Structure Calculations (Working Capital, Capital Employed, Capital Owned)

The financial records of Tari Traders show the following balances at the end of the trading period:
- Stock: ₦180,000\text{₦}180,000
- Trade Debtors: ₦120,000\text{₦}120,000
- Cash at Bank: ₦50,000\text{₦}50,000
- Trade Creditors: ₦100,000\text{₦}100,000
- Bank Overdraft: ₦50,000\text{₦}50,000

What is the working capital of Tari Traders?

  1. ₦200,000\text{₦}200,000Answer
  2. B
    ₦500,000\text{₦}500,000
  3. C
    ₦350,000\text{₦}350,000
  4. D
    ₦250,000\text{₦}250,000

Answer

The working capital of Tari Traders is ₦200,000\text{₦}200,000.
Working capital is computed as Current Assets minus Current Liabilities. Total Current Assets equal ₦350,000\text{₦}350,000 (₦180,000+₦120,000+₦50,000\text{₦}180,000 + \text{₦}120,000 + \text{₦}50,000) and Total Current Liabilities equal ₦150,000\text{₦}150,000 (₦100,000+₦50,000\text{₦}100,000 + \text{₦}50,000). Subtracting total current liabilities from total current assets gives ₦200,000\text{₦}200,000.

Step-by-Step Solution

1
Calculate Total Current Assets
₦180,000+₦120,000+₦50,000=₦350,000\text{₦}180,000 + \text{₦}120,000 + \text{₦}50,000 = \text{₦}350,000
Current assets consist of resources expected to be converted into cash within an accounting year (Stock, Trade Debtors, and Cash at Bank).
2
Calculate Total Current Liabilities
₦100,000+₦50,000=₦150,000\text{₦}100,000 + \text{₦}50,000 = \text{₦}150,000
Current liabilities are short-term financial obligations due within one year (Trade Creditors and Bank Overdraft).
3
Subtract Current Liabilities from Current Assets
Working Capital=₦350,000−₦150,000=₦200,000\text{Working Capital} = \text{₦}350,000 - \text{₦}150,000 = \text{₦}200,000
Working capital measures short-term operational liquidity.

Key Concept

Working Capital Calculation
Estimated Time:1m 0s
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Topics

Capital Structure Calculations (Working Capital, Capital Employed, Capital Owned)

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