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.