Question : Which of the following statements is incorrect?
Option 1: Working Capital = Current Assets - Current Liabilities
Option 2: Current Liabilities = Total Assets - Non-Current Liabilities - Shareholder's fund
Option 3: Working Capital = Equity Share Capital + Reserves & Surplus - Long Term Loan - Non-Current Assets
Option 4: None of the above
Correct Answer: Working Capital = Equity Share Capital + Reserves & Surplus - Long Term Loan - Non-Current Assets
Solution : Answer = Working Capital = Equity Share Capital + Reserves & Surplus - Long Term Loan - Non-Current Assets
Working capital is a measure of a company's short-term financial health. It indicates the ability to pay current liabilities with current assets. Equity, reserves, surplus, and long-term loans are all part of shareholders' funds (financing sources) and non-current assets (long-term investments).
Working Capital
= Current Assets - Current Liabilities (This formula directly calculates the difference between what a company can access quickly and what it owes in the short term)
Current Liabilities
= Total Assets - Non-Current Liabilities - Shareholder’s fund (This formula subtracts long-term financing sources and investments from total assets to arrive at current liabilities).
Hence, the correct option is 3.
Related Questions
Trending Articles/News
