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CMA Intermediate · Financial Management and Business Data Analytics · Financing Working Capital

Ganga Foods has current assets of ₹80 lakh, of which ₹50 lakh is permanent. Fixed assets are ₹120 lakh. Long-term funds are ₹190 lakh and short-term funds are ₹10 lakh. Which statement correctly describes its policy and its net working capital?

The firm follows a conservative policy with net working capital of ₹70 lakh. Long-term funds of ₹190 lakh exceed permanent needs of ₹170 lakh, so they also finance fluctuating assets. Net working capital equals ₹80 lakh current assets minus ₹10 lakh short-term funds.

  1. AConservative; net working capital ₹70 lakhCorrect
  2. BAggressive; net working capital ₹20 lakh
  3. CMatching; net working capital ₹50 lakh
  4. DConservative; net working capital ₹10 lakh

Explanation

Total assets = 200 lakh, funded 190 long-term + 10 short-term. Permanent needs = 120 + 50 = 170 lakh, but long-term funds are 190 lakh, so long-term funds cover 20 lakh of fluctuating assets: conservative. Net working capital = current assets 80 - current liabilities 10 = 70 lakh. Check: long-term funds 190 - fixed assets 120 = 70. Matching would need long-term funds of exactly 170 lakh.

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