CA Intermediate · Financial Management and Strategic Management · Introduction to Working Capital Management
Sharma Traders has the following figures: current assets Rs 18,00,000, current liabilities Rs 12,00,000, of which bank overdraft is Rs 2,00,000. The firm's gross working capital and net working capital are respectively:
Gross working capital is total current assets, Rs 18,00,000. Net working capital is current assets less current liabilities, which is 18,00,000 minus 12,00,000, giving Rs 6,00,000. The bank overdraft is already part of current liabilities, so it must not be deducted again.
- ARs 18,00,000 and Rs 6,00,000Correct
- BRs 6,00,000 and Rs 18,00,000
- CRs 18,00,000 and Rs 4,00,000
- DRs 16,00,000 and Rs 6,00,000
Explanation
Gross working capital equals total current assets, i.e. Rs 18,00,000. Net working capital equals current assets minus current liabilities = 18,00,000 - 12,00,000 = Rs 6,00,000. The overdraft is already included in current liabilities, so deducting it again (giving Rs 4,00,000) is wrong.
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