Rajat was studying in class X. He had to drop out from school as his family could not afford it. He had to take a job of a peon in an office to provide money for his family. He lost his job at the office as the bank interest rate had gone up and the office was finding it difficult to meet expenses. On his way home he stoped at a snack stall to eat something. There he got the idea of opening his own snack stall. Rajat went to meet Mr Om, who was known to his father and used to give finance to people in need. Mr. Om agreed to give finance to Rajat. Rajat took 2 lakhs from Mr. Om and purchased a stall for ₹80,000 and some utensils and gas for ₹20,000. He purchased vegetables, bread, oil, spices etc for ₹10,000, cups, plats and disposable items for ₹5,000. He decided to make sandwiches and sell them for ₹50 each as the competition was high and he wanted customers to come to his stall. He named his food stall "Paras food stall."

In the disposable item, Paras also purchased some boxes so that customers who wanted to take the food home can be given in the boxes. This increased his cost by ₹6,000. By the end of the year, the demand of the sandwiches made by Rajat increased and earned a profit of ₹80,000 after paying taxes.

Due to the popularity of the sandwiches of Rajat, his two friends approached him and asked Rajat if he could help them. Rajat told them that he will manufacture the sandwiches and they would be given the right to distribute them in different parts of the city. The cost of production reduced as Rajat now had to produce in bulk. Rajat's friends are also very happy as all the sandwiches got sold and everyone knew about the sandwiches made by Rajat.

Identify the net working capital needed by Rajat.

₹21000

The correct answer is option (4) - ₹21000

Gross working capital (also known as current capital or circulating capital) is the sum total of all current assets of the business.

Net Working Capital means Current assets- Current Liabilities

Current assets include cash, inventory (raw materials, work in process, finished goods, spares etc) and accounts receivable (or trade debtors). Current assets comprise items that would get converted in to cash in the short-run, say, within the normal operating cycle (or cash conversion cycle) of the business.

Current liabilities represent short-term source of funds and are expected to fall due or mature for payment in a short period, generally within a year. These typically consist of payables to vendors and service providers, employees, other short term borrowings and provisions.

In the present case,

Loan: Rs 2,00,000: It is a long term liability

Purchase of stalls= Rs 80,000: Its a fixed asset

Utensils and Gas= 20,000: Its a fixed asset for Rajat.

Purchase of vegetables, bread, oil, spices etc = ₹10,000 : Inventory (Current Assets)

Disposable items= ₹5,000 : Inventory (Current Assets)

Boxes for home delivery: Rs, 6000: Inventory (Current Assets)

Thus,

Current Assets= 10,000+5,000+6,000= Rs 21,000

current liabilities = Nil

Net Working Capital= Current assets- Current Liabilities

                                = Rs21,000