Answer: B. N 11,000 Explanation of the Correct Answer What is Working Capital? Working capital is a financial metric that represents the difference between a company's current assets and current liabilities. It is a measure of a company's short-term liquidity and operational efficiency. The formula for calculating working capital is: [ \text{Working Capital} = \text{Current Assets} - \text{Current Liabilities} ] Step-by-Step Calculation: 1. Identify Current Assets: These are assets that are expected to be converted into cash or used up within one year. Examples include cash, accounts receivable, inventory, and short-term investments.

1. Identify Current Liabilities: These are obligations that the company needs to settle within one year. Examples include accounts payable, short-term loans, and other accrued expenses.
2. Perform the Calculation: Subtract the total current liabilities from the total current assets to find the working capital.

Example Calculation: - Suppose a company has: - Current Assets: N 50,000 - Current Liabilities: N 39,000 Using the formula: [ \text{Working Capital} = N 50,000 - N 39,000 = N 11,000 ] Thus, the working capital is N 11,000, which corresponds to option B. Why Other Options are Incorrect

• Option A: N 12,000
• This option suggests that the current assets exceed current liabilities by N 12,000. If we assume the current assets are N 50,000, then current liabilities would need to be N 38,000. However, this does not match our example calculation, which shows that the working capital is N 11,000.
• Option C: N 8,000
• For this option to be correct, the current liabilities would need to be significantly higher than in our example. If current assets were N 50,000, current liabilities would need to be N 42,000. This is not supported by the example provided.
• Option D: N 4,000
• This option indicates an even larger discrepancy. For working capital to be N 4,000, current liabilities would need to be N 46,000 if current assets are N 50,000. This is not a plausible scenario based on the example.

Common Pitfalls

• Misunderstanding Current vs. Non-Current: Students often confuse current assets and liabilities with non-current ones. Remember, only assets and liabilities that are due within one year are considered in working capital calculations.
• Forgetting to Subtract: Some students may mistakenly add current assets and liabilities instead of subtracting them, leading to incorrect calculations.
• Ignoring the Context: Always ensure you have the correct figures for current assets and liabilities before performing the calculation.

Revision Summary

• Working capital is calculated as Current Assets minus Current Liabilities.
• It measures a company's short-term liquidity and operational efficiency.
• The correct answer for the working capital in this scenario is N 11,000 (Option B).
• Always ensure to differentiate between current and non-current items when calculating working capital.