BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Current liability only
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Long term liability only
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Partly from both types long and short term liabilities
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By profits only
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Detailed explanation-1: -Current assets are those assets which, in the normal routine of the business, get converted into cash or cash equivalents within one year e.g. inventories, debtors etc. Hence these should be financed by both long term and short term libility.
Detailed explanation-2: -Current assets of enterprises may be financed either by short-term sources or long-term sources or by combination of both. The main sources constituting long-term financing are shares, debentures, and debts form banks and financial institutions.
Detailed explanation-3: -Answer and Explanation: Under matching policy, long term financing is used to finance fixed assets and permanent current assets, while short term financing is used to finance temporary current assets.
Detailed explanation-4: -Fixed assets remains in the business for more than one year. Decision to invest in fixed assets are irrevocable. Therefore these assets should be financed by Fixed Capital.
Detailed explanation-5: -A. 13 No, it is not advisable to use short term financing to finance its entire current assets. The magnitude of current assets increases or decreases over time and also with respect to level of activity.