Question

Which of the following is a component of working capital investment?

• A. Utilities plant
• B. Maintenance and repair inventory
• C. Process equipment
• D. Depreciation

Hint:

Working capital includes short-term assets like maintenance inventory, but not fixed assets like process equipment or non-cash expenses like depreciation.

Answer 1

The Correct Option is B

Step 1: Understand working capital investment.
Working capital investment refers to the funds required to cover the day-to-day operational expenses of a business or plant. It includes short-term assets and liabilities that ensure smooth operation, such as:
Cash, accounts receivable, and inventory (raw materials, work-in-progress, finished goods).
Maintenance and repair inventory, which includes spare parts and supplies needed for ongoing operations.
Working capital does not include long-term assets or non-operational expenses. Step 2: Analyze the options in the context of working capital.
Utilities plant: This refers to infrastructure for utilities (e.g., power, water, steam generation), which is a fixed asset and part of the capital investment, not working capital.
Maintenance and repair inventory: This includes spare parts, tools, and supplies used for maintenance and repairs. It is a short-term asset that ensures operational continuity, making it a component of working capital.
Process equipment: This refers to major equipment like reactors or pumps, which are fixed assets and part of the capital investment, not working capital.
Depreciation: This is an accounting expense representing the reduction in value of fixed assets over time. It is not a cash flow or asset and thus not part of working capital. Step 3: Evaluate the options.
(1) Utilities plant: Incorrect, as it is a fixed asset, not a working capital component. Incorrect.
(2) Maintenance and repair inventory: Correct, as it is a short-term asset required for ongoing operations, fitting the definition of working capital. Correct.
(3) Process equipment: Incorrect, as it is a fixed asset, not part of working capital. Incorrect.
(4) Depreciation: Incorrect, as depreciation is a non-cash accounting expense, not a working capital component. Incorrect. Step 4: Select the correct answer.
Maintenance and repair inventory is a component of working capital investment, matching option (2).