CAF-7 · Chapter 12 · Question 12 of 15
When a company calculates its Work-in-Process (WIP) inventory valuation for working capital purposes, how should non-cash items like factory depreciation be treated?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) They must be completely excluded from the calculation
Explanation
Working capital calculations dictate the actual cash required to finance operations. Depreciation is a non-cash expense and does not represent funds tied up in the daily operating cycle, so it must be stripped out of overheads before valuing WIP.
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