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    Question

    A firm has current assets of ₹8 lakh and current

    liabilities of ₹5 lakh. If it collects ₹1 lakh from debtors and uses it to pay creditors, what happens to working capital?
    A Increases by ₹1 lakh Correct Answer Incorrect Answer
    B Decreases by ₹1 lakh Correct Answer Incorrect Answer
    C No change Correct Answer Incorrect Answer
    D Increases by ₹2 lakh Correct Answer Incorrect Answer

    Solution

    Working capital = CA – CL = ₹8L – ₹5L = ₹3L On collection: Debtors ↓ ₹1L, Cash ↑ ₹1L → no change in CA Payment to creditors: Cash ↓ ₹1L, CL ↓ ₹1L → net WC remains unchanged

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