Q. What is the effect of depreciation on working capital?
-
A.
Increases working capital
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B.
Decreases working capital
-
C.
No effect on working capital
-
D.
Depends on the method of depreciation
Solution
Depreciation does not directly affect working capital as it is a non-cash expense.
Correct Answer:
C
— No effect on working capital
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Q. What is the effect of increasing accounts payable on working capital?
-
A.
Increase working capital
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B.
Decrease working capital
-
C.
No effect on working capital
-
D.
Depends on current assets
Solution
Increasing accounts payable increases working capital as it reduces current liabilities.
Correct Answer:
A
— Increase working capital
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Q. What is the formula for calculating working capital?
-
A.
Current Assets - Current Liabilities
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B.
Total Assets - Total Liabilities
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C.
Current Assets + Current Liabilities
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D.
Total Assets + Total Liabilities
Solution
Working capital is calculated using the formula: Current Assets - Current Liabilities.
Correct Answer:
A
— Current Assets - Current Liabilities
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Q. What is the primary focus of working capital management?
-
A.
Maximizing shareholder wealth
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B.
Minimizing operational costs
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C.
Ensuring liquidity and operational efficiency
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D.
Maximizing asset turnover
Solution
The primary focus of working capital management is ensuring liquidity and operational efficiency.
Correct Answer:
C
— Ensuring liquidity and operational efficiency
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Q. What is the primary goal of managing working capital?
-
A.
Maximizing shareholder wealth
-
B.
Minimizing operational costs
-
C.
Ensuring liquidity and operational efficiency
-
D.
Maximizing asset turnover
Solution
The primary goal of managing working capital is ensuring liquidity and operational efficiency.
Correct Answer:
C
— Ensuring liquidity and operational efficiency
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Q. What is the primary purpose of working capital management?
-
A.
To maximize long-term profitability
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B.
To ensure a company can meet its short-term obligations
-
C.
To minimize tax liabilities
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D.
To increase fixed asset investments
Solution
The primary purpose of working capital management is to ensure a company can meet its short-term obligations.
Correct Answer:
B
— To ensure a company can meet its short-term obligations
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Q. What method of inventory valuation assumes that the oldest inventory items are sold first?
-
A.
FIFO
-
B.
LIFO
-
C.
Weighted Average
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D.
Specific Identification
Solution
The FIFO (First In, First Out) method assumes that the oldest inventory items are sold first.
Correct Answer:
A
— FIFO
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Q. Which accounting standard governs the recognition of inventory?
-
A.
IFRS 15
-
B.
IAS 2
-
C.
IFRS 9
-
D.
IAS 10
Solution
IAS 2 governs the recognition and measurement of inventory.
Correct Answer:
B
— IAS 2
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Q. Which depreciation method allocates an equal amount of depreciation expense each year?
-
A.
Declining Balance
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B.
Units of Production
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C.
Straight-Line
-
D.
Sum-of-the-Years'-Digits
Solution
The Straight-Line method allocates an equal amount of depreciation expense each year.
Correct Answer:
C
— Straight-Line
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Q. Which financial statement provides information about a company's working capital?
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A.
Income Statement
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B.
Cash Flow Statement
-
C.
Balance Sheet
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D.
Statement of Changes in Equity
Solution
The Balance Sheet provides information about a company's working capital by listing current assets and current liabilities.
Correct Answer:
C
— Balance Sheet
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Q. Which of the following is a key indicator of working capital efficiency?
-
A.
Current Ratio
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B.
Debt to Equity Ratio
-
C.
Return on Equity
-
D.
Gross Profit Margin
Solution
The Current Ratio is a key indicator of working capital efficiency, measuring the ability to cover short-term liabilities.
Correct Answer:
A
— Current Ratio
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Q. Which of the following is considered a current asset?
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A.
Land
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B.
Accounts Receivable
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C.
Equipment
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D.
Long-term Investments
Solution
Accounts Receivable is considered a current asset as it is expected to be converted into cash within one year.
Correct Answer:
B
— Accounts Receivable
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Q. Which of the following is NOT a component of working capital?
-
A.
Cash
-
B.
Accounts Payable
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C.
Inventory
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D.
Long-term Debt
Solution
Long-term Debt is not a component of working capital; it is a long-term liability.
Correct Answer:
D
— Long-term Debt
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Q. Which of the following would be classified as a current liability?
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A.
Bonds Payable
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B.
Accounts Payable
-
C.
Mortgage Payable
-
D.
Long-term Loans
Solution
Accounts Payable is classified as a current liability as it is due within one year.
Correct Answer:
B
— Accounts Payable
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