Monetary Working Capital Adjustment - Management Duniya

Monetary Working Capital Adjustment

Monetary Working Capital Adjustment:

Working capital is that part of capital which is required to meet the day to day expenses & for holding current Assets for the business. It is refer to as the excess of current assets over current liabilities. The changes in price levels distribute the working capital position of a concern. CCA method requires a financing adjustment reflecting the effects of changing prices on net monetary items, leading to a loss from holding net monetary assets are to gain from holding net monetary values when prices are rising & vise varsa in order to maintain in monetary working capital of the enterprise. This adjustment reflects the amounts of additional finance needed to maintain the same working capital due to the changes in price levels.

Monetary Working Capital Adjustment:

[C – O ] – I_a [C/I_c – O/I_o]

Where

C = Closing Monetary working capital

O = Opening Monetary Working capital

I_a = Avg. Index for the period

I_c = Appropriate index for closing monetary working capital.

 I_o = Appropriate index for opening monetary working capital.

Source: A/c Books & Notes

Tags: Account, accounting, accounts, Adjustment, Capital, Cost, expenses, finance, income, Loss, Management, Monetary, Price, Profit, Profit & Loss, Profit & Loss a/c, revenue, sales, volume, Working Capital
By: Management Duniya