WCM seminar questions 9 PDF

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FIN1212 Seminar 9: Working Capital Management (Questions)

1.

Choose the incorrect statement. A. B. C. D.

2.

C. D.

Machinery is an element of working capital. Potential benefits must be weighed against likely costs in an attempt to achieve the optimum investment in working capital. Operating cash cycle for a trading business is the length of time between cash payments for inventories and cash receipts from the sale of goods. The size and composition of working capital can vary between industries.

Choose the correct statement. A. B. C. D.

4.

Bank overdraft is an element of working capital. One of the ways to shorten the operating cycle is to delay payments to trade payables. Working capital measures the profitability of an entity. Cash budget is a useful tool for managing cash.

Choose the incorrect statement. A. B.

3.

Financial Concepts of business

Goodwill is an element of working capital. One of the costs of holding trade receivables is reduction in sales. Working capital measures the efficiency of an entity. Operating cash cycle for a trading business is the length of time between purchase of goods on credit and cash settlement to trade payables.

Choose the correct statement. A. B. C. D.

Building is an element of working capital. Operating cash cycle for a trading business is the length of time between purchase of goods on credit and sale of goods on credit. Working capital measures the financial gearing of an entity. The shorter the operating cash cycle, the better it is.

FIN1212 Seminar 9: Working Capital Management (Questions)

5.

The operating cash cycle is measured as: A. B. C. D.

6.

Financial Concepts of business

average inventories turnover period + average settlement period for trade receivables – average settlement period for trade payables. average inventories turnover period - average settlement period for trade receivables – average settlement period for trade payables. average inventories turnover period + average settlement period for trade receivables + average settlement period for trade payables average inventories turnover period - average settlement period for trade receivables + average settlement period for trade payables.

Calculate the average settlement period for trade receivables if the average inventories turnover period is 60 days, the operating cash cycle is 56 days and the average settlement period for trade payables is 90 days. A. B. C. D.

86 days 206 days 26 days 94 days

(Workings: Apply the following formula in calculation, Operating cash cycle = Average inventories turnover period + Average settlement period for trade receivables – Average settlement period for trade payables Therefore, Average settlement period for trade receivables = Operating cash cycle – Average inventories turnover period + Average settlement period for trade payables = 56 days – 60 days + 90 days = 86 days) 7.

Calculate the average settlement period for trade payables if the average inventories turnover period is 90 days, the operating cash cycle is 77 days and the average settlement period for trade receivables is 35 days. A. B. C. D.

22 days 132 days 202 days 48 days

(Workings: Apply the following formula in calculation, Operating cash cycle = Average inventories turnover period + Average settlement period for trade receivables – Average settlement period for trade payables

FIN1212 Seminar 9: Working Capital Management (Questions)

Financial Concepts of business

Therefore, Average settlement period for trade payables = Average inventories turnover period + Average settlement period for trade receivables – Operating cash cycle = 90 days + 35 days - 77 days = 48 days) 8.

Calculate the average inventories turnover period if the average settlement period for trade payables is 95 days, the operating cash cycle is 52 days and the average settlement period for trade receivables is 67 days. A. B. C. D.

110 days 80 days 24 days 214 days

(Workings: Apply the following formula in calculation, Operating cash cycle = Average inventories turnover period + Average settlement period for trade receivables – Average settlement period for trade payables Therefore, Average inventories turnover period = Operating cash cycle – Average settlement period for trade receivables + Average settlement period for trade payables = 52 days – 67 days + 95 days = 80 days) 9.

All of the following statements regarding just-in-time inventories management are correct, except: A. B. C. D.

10.

Just-in-time inventories management ensures raw materials are received just in time for production. Just-in-time inventories management ensures manufactured parts are completed just in time for assembly. Just-in-time inventories management ensures finished goods are completed just in time for shipment. Just-in-time inventories management ensures customer returns are received just in time for refund

Consider the following statements: (i) (ii) (iii) A. B. C. D.

By exercising looser control over trade receivables, it may be possible for an entity to reduce the proportion of trade receivables held. One of the disadvantages of holding trade payables is cash discount forgone. The purpose of holding cash is to meet legal requirement.

(i) True; (ii) True; (iii) True. (i) True; (ii) False; (iii) True. (i) False; (ii) False; (iii) False. (i) False; (ii) True; (iii) False.

FIN1212 Seminar 9: Working Capital Management (Questions)

11.

Consider the following statements: (i) By exercising tighter control over trade receivables, it may be possible for an entity to release funds for other purposes (ii) One of the advantages of holding trade payables is cash discount forgone. (iii) The purpose of holding cash is to meet the day-to-day commitments. A. B. C. D.

12.

(i) True; (ii) True; (iii) True. (i) True; (ii) False; (iii) True. (i) False; (ii) False; (iii) False. (i) False; (ii) True; (iii) False.

Consider the following statements: (i) By preparing ageing schedule of trade receivables may increase collections from trade receivables and reduce bad debts. (ii) One of the control procedures in managing trade payables is by monitoring the level of trade payables using ageing schedule. (iii) The purpose of holding cash is to exploit profitable opportunities. A. B. C. D.

13.

Financial Concepts of business

(i) True; (ii) True; (iii) True. (i) True; (ii) False; (iii) True. (i) False; (ii) False; (iii) False. (i) False; (ii) True; (iii) False

Consider the following statements: (i) The purpose of holding cash is to meet any uncertain future cash outflows. (ii) By increasing cash discount to trade receivables for prompt payment will increase the net profit of the entity. (iii) One of the control procedures in managing trade payables is by monitoring the level of trade payables using ratio analysis. A. B. C. D.

(i) True; (ii) True; (iii) True. (i) True; (ii) False; (iii) True. (i) False; (ii) False; (iii) False. (i) False; (ii) True; (iii) False....