Fred Asamah had the following state of affairs as at 31st December, 1999 Vehicles 82,000 Furniture 15,000 Stocks 38,000 Debtors 25,000 Creditors 30,000 Cash in hand 10,000 Bank overdraft 5,000 Capital 135,000 (a) Calculate: (i) the current assets of the business (ii)current liabilities (iii) its working capital (b)What is a current asset? (c) State one significance
Explanation
(a) Current Assets: N N (i) Stocks 38,000 Debtors 25,000 Cash in hand 10,000 73.000 (ii) current liabilities creditors 30,000 Bank overdraft 5,000 35,000 (iii) working capital: current assets - current liabilities = 73,000 - 35,000 = 38,000 (b) Current assets are assets which can change from cash to stock at will. It is also known as the circulating capital. (c) The significance of calculating the working capital is primarily to know the extent to which a business can meet its financial obligations as they become due. It is used to ascertain the extent of the business solvency.
