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CMA Intermediate · Financial Management and Business Data Analytics · Comparative, Common-Size Financial Statements and Trend Analysis

Narmada Ltd reports current assets of ₹5,00,000 in Year 1 and ₹6,20,000 in Year 2, and current liabilities of ₹2,50,000 in Year 1 and ₹2,60,000 in Year 2. In the comparative balance sheet, what is the change in working capital for Year 2 over Year 1?

Working capital increased by ₹1,10,000, rising from ₹2,50,000 to ₹3,60,000. It is current assets minus current liabilities in each year, so the rise in current liabilities must be netted against the rise in current assets.

  1. AIncrease of ₹1,10,000Correct
  2. BIncrease of ₹1,20,000
  3. CDecrease of ₹1,10,000
  4. DIncrease of ₹10,000

Explanation

Working capital Year 1 = 5,00,000 − 2,50,000 = 2,50,000. Year 2 = 6,20,000 − 2,60,000 = 3,60,000. Change = +1,10,000. The ₹1,20,000 option ignores the rise in current liabilities, as it is only the change in current assets.

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