The requirement of Working Capital isn’t affected by:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Level of Collaboration
Working capital is the money invested in current assets, such as stock, debtors and cash, to run day-to-day operations. Fixed capital is the money invested in long-term assets, such as land and machinery.
Option (1) Nature of Business — A factor affecting working capital (Incorrect). A trading firm needs less working capital than a manufacturing firm, which must hold raw materials and goods under production.
Option (2) Level of Collaboration — Not a factor affecting working capital (Correct). Collaboration means firms sharing facilities, such as one bank using another’s ATM. It reduces the need for long-term assets, so it is a factor affecting fixed capital.
Option (3) Credit Availed — A factor affecting working capital (Incorrect). When suppliers give credit, the firm needs less of its own money for purchases.
Option (4) Credit Allowed — A factor affecting working capital (Incorrect). When the firm sells on credit, its money is held up in debtors, so it needs more working capital.
NCERT (2026-27 Edition): “8. Level of Collaboration: At times, certain business organisations share each other’s facilities. For example, a bank may use another’s ATM or some of them may jointly establish a particular facility. This is feasible if the scale of operations of each one of them is not sufficient to make full use of the facility. Such collaboration reduces the level of investment in fixed assets for each one of the participating organisations.” “1. Nature of Business: The basic nature of a business influences the amount of working capital required. …” “6. Credit Allowed: Different firms allow different credit terms to their customers. These depend upon the level of competition that a firm faces as well as the credit worthiness of their clientele. A liberal credit policy results in higher amount of debtors, increasing the requirement of working capital.” “7. Credit Availed: Just as a firm allows credit to its customers it also may get credit from its suppliers. To the extent it avails the credit on purchases, the working capital requirement is reduced.” |