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CMA Intermediate · Financial Management and Business Data Analytics · Fund Flow Statement - Preparation and Analysis

Sagar Foods Ltd had current assets of Rs 5,00,000 and current liabilities of Rs 2,00,000 at the start of the year. At the year end, current assets were Rs 6,20,000 and current liabilities Rs 2,50,000. The statement of changes in working capital will show:

Working capital rises by Rs 70,000. Opening working capital was Rs 3,00,000 (5,00,000 less 2,00,000) and closing is Rs 3,70,000 (6,20,000 less 2,50,000). The option of Rs 1,20,000 only counts the increase in current assets and ignores the increase in current liabilities.

  1. ADecrease in working capital of Rs 70,000
  2. BIncrease in working capital of Rs 70,000Correct
  3. CIncrease in working capital of Rs 1,20,000
  4. DIncrease in working capital of Rs 50,000

Explanation

Opening working capital = 5,00,000 - 2,00,000 = 3,00,000. Closing = 6,20,000 - 2,50,000 = 3,70,000. Increase = 70,000. Rs 1,20,000 ignores the rise in current liabilities.

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