1 Working Capital

1-Working Capital
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Working Capital
y
CA M K Jain
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1-Working Capital


Working Capital Management
Question 1
What do you understand by the Term Working Capital. How would you differentiate between
Gross and Net Working Capital.
Answer
Meaning of Working Capital.
Working Capital is defined as the excess of Current assets over current liabilities. Current assets
are those assets which will be converted into cash within the current accounting period or within
the next year as a result of the ordinary operations of the business. They are cash or near cash
resources. These include:
1) Cash and Bank Balances
2) Receivables
3) Inventory
a) Raw materials, stores and spares
b) Work - in - Progress
c) Finished goods
4) Prepaid expenses
5) Short term advances
6) Temporary investments
The value represented by these assets circulates among several items. Cash is used to buy raw
materials, to pay wages and to meet other manufacturing expenses. Finished goods are produced.
These are held as inventories. When these are sold accounts receivable are created. The
collection of accounts receivable brings cash into the firm. The cycle starts again Current liabilities
are the debts of the firms that have to be paid during the current accounting period or within a
year. These include:
1) Creditors for goods Purchased
2) Outstanding expenses Le., expenses due but not paid
3) Short term borrowings
4) Advances received against sales
5) Taxes and dividends payable
6) Other Liabilities maturing within a year.
Working Capital is also known as circulating capital. fluctuating capital and revolving capital. The
magnitude and composition keep on changing continuously in the course of business.
Gross and Net Working Capital.
1-Working Capital

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Generally the working capital has its significance in two perspectives - Gross Working Capital and
Net Working Capital.
Gross Working Capital:-
The gross working capital refers to investment in all the current assets. The total of investments in
all current assets is known as gross working capital.
Net Working Capital.
1) It is the excess of current assets over current liabilities. This is as a matter of fact, the most
commonly accepted definition. Some people define it has only the difference between current
assets and current liabilities.
2) It is that portion of a firms current assets which is financed by long - term funds.
Question 2
Whay is it important to have adequate working capital. Explain effects of insufficient working
capital.
Answer
Importance of adequate Working Capital.
The need for adequate investment in working capital can be understood from the following points:
1) Working Capital is required to use fixed assets profitably. For example a machine cannot be
used productively without raw materials etc.
2) Funds are required for day to day operations and transaction. These are provided by Cash
and Cash equivalents, forming part of current assets.
3) Adequate working capital determines the short - term solvency of the firm. An adequate
working capital means that the firm will be unable to meet its immediate payment
commitments. This represents under capitalisation.
4) Increase in activity levels and sales should be backed up by suitable investment in working
capital.
5) The aspects of liquidity and Profitability should be suitably analysed by the Finance Manager,
Too much emphasis on profitability may adversely affect liquidity.
Hence working capital levels are said to be adequate when:
1) Current Assets are greater than Current Liabilities.
2) Current Ratio = Current Assets / Current Liabilities is about 2 : 1. This may differ from industry
to industry.
3) Quick Ratio = Quick Assets / Quick Liabilities is at least 1 : 1. This may also differ from
industry to industry.
Disadvantages of Insufficient Working Capital.
The disadvantages sufferd by a company with insufficient working capital are as follows:
1) The Company is unable to take advantage of new opportunities or adapt to changes.
1-Working Capital


2) Trade discounts are lost. A Company with ample working capital is able to finance large
stocks and can therefore place large orders.
3) Cash discount are lost. Some companies are try to persuade their debtors to pay early by
offering them a cash discount off the price owed.
4) The advantages of being able to offer a credit line to customers are foregone.
5) Financial reputation is lost result in non - cooperation from trade creditors in times of difficulty.
6) There may be concerted action by creditors and will apply to court for winding up.
Question 3
What is the need for working capital. What factors influence levels of working capital. Also explain
Permanent and Temporary Working Capital.
Answer
"eed #or Working Capital.
The basic objective of financial management is to maximise shareholders wealth. This is possible
only when the company earns sufficient profit. The amount of such profit largely depends upon the
magnitude of sales. However, sales do not convert into cash instantaneously. There is always a
time gap between the sale of goods and receipt of cash. Working capital is required for this period
in order to sustain the sales activity. In case adequate working capital is not available for this
period, the company will not be in a position to sustain the sales since it may not be in a position to
sustain the sales since it may not be in a position to purchase to purchase raw materials, pay
wages and other expenses required for manufacturing the goods to be sold. Thus we need
working capital for following reasons
1) A firm invests a part of its permanent capital in fixed assets and keeps a part of it for working
capital i.e. for meeting the day to day requirements.
2) We will hardly find a firm which does require any amount of working capital for its normal
operations. The requirement of working capital varies from firm to firm depending upon the
nature of business, Production policy, market conditions, seasonality of operations, conditions
to supply etc.
3) Working capital to a company is like the blood to human body. It is the most vital ingredient of
a business.
4) Working capital management if carried out effectively, efficiently and consistently, will assure
the health of an organisation.
#a$tors in%l&en$ing t'e le(els o% )orking $apital needs o% a %ir*+
Factors influencing the levels of working capital needs of a firm can be categorised into two
groups, viz internal factors and external factors.
1-Working Capital


,nternal #a$tors.
1) Nature of business (trading vs. manufacturing concern)
2) Size of business
3) Firms Production policy (Seasonal vs. regular business)
4) Firms credit policy
5) Access of money market
6) Growth and expansion of business
7) Profit margin and dividend policy
8) Inventory policy of a company
9) Operating efficiency of firm
10) Length of Production Cycle
11) Demand of Industry
12) Cash Requirement
-.ternal %a$tors.
1) Market conditions (degree of competition)
2) Technological development
3) Conditions of supply
4) Import Policy
5) Taxation Policy
6) Abnormal factors
Per*anent and /e*porary Working Capital+
Working capital can be dividend into two categories on the basis of time:
1) Permanent Working Capital:
2) Temporary of Variable Working Capital.
Permanent working capital represents the assets required on continuing basis over the entire year,
whereas temporary working capital represents additional assets required at different items during
the operation of the year.
Per*anent Working Capital.
This refers to that minimum amount of investment in all current assets which is required at all
times to carry out minimum level of business activities. In other words, it represents the current
assets required on a continuing basis over the entire year. Tandon Committee has referred to this
type of working capital as Hard core current assets.
1-Working Capital


The following are the characteristics of this type of working capital:
1) Amount of Permanent working capital remains in the business in one form or another. This is
particularly important from the point of view of financing. The suppliers of such working capital
should not expect its return during the lifetime of the firm.
2) It also grows with the size of the business. In other words, greater the size of the business,
greater is the amount of such working capital and vice versa. Permanent working capital is
permanently needed for the business and therefore it should preferable be financed out of
long - term funds.
/e*porary Working Capital.
It refers to that part of total working capital which is required by a business over and above
permanent working capital. It is also called variable working capital. Since the volume of temporary
working capital keeps on fluctuating from time to time. In other words, it represents additional
current assets required at different times during the operating year. For example, extra inventory
has to be maintained to support sales during peak sales period. Similarly, receivable also increase
and must be financed during period of high sales. On the other hand investment in inventories,
receivables etc. will decrease in periods of depression Temporary working capital is generally
financed from short term sources of finance such as bank credit. The diagrams given below
illustrate the difference between Permanent and temporary working capital is fixed over a period of
time, while temporary working capital is fluctuating In fig. 5.2 the permanent working capital is
increasing over a period of time with increase in the level of business activity. This happens in
case of a growing company. Hence, the permanent working capital line is not horizontal with the
base line as in diagram

Question 4
What do you understand by working Capital Management and explain various considerations in
working capital Management.
Answer
Working Capital Management.
Working capital management is usually concerned with the administration of all the current assets
and current liabilities it is basically concerned with:
a) Determining the need for working capital.
b) Determining the optimal levels of investment in various current assets, and
c) Examining the salient points regarding each element of working capital.
It is obvious that given a constant level of production, higher the amount of working capital, the
lower will be the return on investment since capital turnover ratio will be less. On the other hand,
1-Working Capital


lower the amount of working capital, the higher would be the amount of the risk since the company
would not have adequate liquidity to meet its short term obligations. In working capital
management, therefore we have to strike a balance between risk and Profitability. We have to find
out that level of investment in working capital which gives us a reasonable amount of liquidity
subject to a good working capital turnover ratio. In fact, working capital management policies have
a great influence on a firms profitability liquidity and structural health.
Major considerations in Working Capital Management.
The three major considerations in working capital management are:
a) Profitability
b) Liquidity and
c) Structural Health.
1) If the amount of Working Capital is high, liquidity is high. But due to low capital Turnover
ratio, the return on investment or profitability will also below.
2) Similarly, if the amount of working capital is less a high turnover indicates higher profitability.
But liquidity may be seriously affected, causing loss of reputation in the short run.
3) Also the structural health of the firm on the long - term and short - term basis depends upon
the optimum amount of working capital.
Hence, the finance manager has to strike a balance between liquidity and Profitability without
affecting the structural health of the firm.
Question 5
Explain various approaches to working capital financing.
Answer
Financing Current Assets.
A firm can adopt different financing sources viz. long term short term and spontaneous. Long term
sources can be shares, debentures long term loans etc. Short term sources like bank loans,
commercial paper, factoring etc. Spontaneous source is short of self financing like trade credit
which does not have any explicit cost. A firm should take maximum advantage of the spantaneous
finance sources. The approach a firm uses in mixing these sources can be matching, conservative
or aggressive.

12 Mat$'ing Approa$'.
When a firm uses long term sources to finance fixed assets and Permanent current assets and
short term financing to finance temporary current assets as shown below

1-Working Capital


22 Conser(ati(e Approa$'.
Under this Approach a firm finances its permanent assets and also a part of temporary current
assets with long term finances. It relies heavily a long term financing and is less risky so far as
solvency is concerned, however, the funds may be invested in such instruments which fetch small
returns to build up liquidity thus deviously affecting profitability as shown below

!2 Aggressi(e Approa$'.
The firm uses more short term financing than is justified in this approach. The firm finances a part
of its Permanent current assets with short term financing. This is more risky but may add to the
return on assets as shown below

Question 6
Write Short Notes on:-
a) Hard Core Working Capital
b) Impact of Double Shift on Working Capital.
Answer
4ard Core Working Capital.
Hard Core working capital or core current assets may be defined as that part of the current assets
which represents the very minimum level of raw materials, Process stock, finished goods, stores
accounts receivable and cash which are in circulation to ensure continuity of production. Thus the
core current assets represent a fixed element just like the fixed Assets of the company. Such
current assets are basically in the nature of circulating assets but are blocked for long term for
example, funds invested in core inventories, Comprising process stock plus minimum raw
materials, finished goods and stores are tied up a long term arising out of technological and
business considerations, quite like the investment in fixed assets like machinery and building. In
relation to inventory, the base stock would be treated as hard core.
Determination the hardcore working capital in different industries would require a careful analysis
of the items of inventory, receivables work in process and cash.
Impact of double Shift Working on Working Capital Requirements.
Working Double shifts leads to economics of sale due to greater use of fixed assets. As a firm
increases the number of production hours, working capital requirements also increase. But the
increase in the working capital may not be directly Proportional.
The impact of double shift working on various components of working capital is as under:
1-Working Capital


1) Raw Materials.
Stock Requirements as regards units, may double since consumption per day will be twice as
earlier. However, due to bulk Purchasing, the firm may avail of quantity discounts.
2) Work -in - Progress.
There will be no change in the quantity of Work - in - Progress since work commenced in first shift
will be completed in the second and vice - versa. At the end of any day, the average quantity of
Work - in - Progress remains the same.
3) Finished goods.
Due to greater production, finished goods stock may double in quantity. But cost of Production per
unit may be reduced due to lower cost of raw materials, economies of fixed costs etc.
4) Debtors.
Increase in demand and Increased sales will lead to higher amount of Debtors, for the same credit
period. But the increase may not be Proportional or it may not double in case of reduction in credit
period. Also discounted selling price may be offered in order to sell the increased production.
5) Creditors.
Due to bulk Purchasing and better bargaining power the firm may avail extended credit period for
payment. Unless otherwise specified, the amount of creditors may double.
6) Fixed and VAriable Overheads.
Fixed overheads will remain fixed whereas variable overheads will increase in Proportion to the
increased Production, Semi - variable overheads will increase according to the variable element
in them.
Question 7
What are the recommendations of various Committee on Financing of Working Capital
Requirement.
Answer
Financing of Working Capital.
After determining the level of working capital, there comes the question of financing. Two other
short term sources of working capital finances are.
1) Trade Credit
2) Short term bank credit for working capital:
a) Cash Credit
b) Letter of Credit
c) Bills finance
d) Working capital demand loan
e) Overdraft facility
3) Factoring of receivables
1-Working Capital


4) Commercial paper
5) Long term sources comprising equity capital and long term borrowings
Maximum Permissible Bank Finance - Tandon Committee.
The Reserve Bank of India set up in 1974 a study group under the chairmanship of Mr. P.L.
Tandon Popularly referred to as The Tandon Committee.
Terms of Reference.
1) To suggest guidelines for commercial banks to follow up and supervise credit from the point
of view of ensuring proper and use of funds.
2) To make recommendations for obtaining Periodical forecasts from borrowers of business /
Production plans and credit needs.
3) To make suggestions for Prescribing inventory norms for different industries both in the
private and public sectors and indicate the broad criteria for deviating from those norms.
4) To make criteria regarding satisfactory capital structure and sound financial basis in relation
to borrowing.
5) To make recommendations as to whether the existing the pattern of financing working capital
requirements by cash credit overdraft system etc. requires to be modified. If so, to suggest
suitable modifications.
6) To make recommendations on any other related matter as it may consider germane to the
subject of enquiry or any other matter which may be specifically refer to it by the Reserve
Bank of India.
Findings of the Committee.
1) Borrowers who decide how much they would borrow. The bank cannot do any credit planning
since it doesnot decide how much it would lend.
2) Bank credit instead of being taken as a supplementary to other source of finance is treated as
first source of finance.
3) Bank credit is extended on the amount of security available and not according to the level of
operations of the borrower.
4) There is a wrong notion that security by itself ensures the safety of bank funds. As a matter of
fact safety essentially lies in efficient follow up of the industrial operations of the borrowers.
Recommendations of the Committee.
1) A Proper fund discipline has to be observed by the borrowers. They should supply to the
banker information regarding his operational plans well in advance. The banker must carry
out a realistic appraisal of such plans.
2) The main function of the banker as a lender into supplement the borrowers resources to
carry on acceptable level of current assets. This has two implications (a) current assets must
be reasonable and based on norms and (b) a part of funds requirement for carrying out
current asset must be financed from long term funds.
3) The bank should know the end use of bank credit so that it is used only for purposes for
which it was made available.
1-Working Capital


4) The bank should follow inventory and receivable norms and also lending norms. It has
suggested inventory and receivable norms for fifteen major industries. It has also suggested
three lending norms which are as follows:
Lending Norms.
1) The borrower has to contribute a minimum of 25% of working capital gap from long term
funds.
MPBF = 75% of [Current Assets and Current Liabilities] i.e 75% of Net Working Capital.
2) The borrower has to contribute a minimum of 25% of the total current assets from long term
funds.
MPBF = [75% of Current Assets] Less Current Liabilities.
3) The borrower has to contribute the entire hard core current assets and a minimum of 25% of
the balance of the current assets from long term funds.
MPBF = [75% of Soft Core Current Assets] Less Current Liabilities.
Main recommendations of Chore Committee:
1) Enhancement of borrowers contribution.
The Committee recommended that the borrowers over - dependence on bank credit should be
reduced by increasing their contribution to working capital. For this purpose in assessing the
permissible bank credit, the borrowers should adopt the second method of lending recommended
by the Tandon Committee requiring the borrowers to contribute at least 25% of the total current
assets from their own funds. This would give a minimum current ratio of 1.33: 1. The excess
borrowing should be segregated and treated as working capital term loan payable in half - yearly
instalments within five years.
2) Compulsory Periodic review of cash credit limits and submission of quarterly Statement.
Credit limit of all borrowers having a limit of over Rs. 10 lakhs should be reviewed at least once a
year compulsorily and all borrowers having a limit of Rs. 50 lakhs and above should submit
quarterly statement compulsorily as Prescribed by the committee.
3) No bifurcation of cash credit into demand loan for core portion and fluctuating Cash
credit component.
This was recommended to avoid the differential in interest rate. In cases where cash credit
accounts have already been bifurcated, steps should be taken to abolish the differential interest
with immediate effect.
4) Separate limits for peak level and normal non - peak levels periods.
Bankers should fix separate credit limits whereever feasible for the normal non - peak level as also
for the peak level credit requirements indicating the duration of these periods. These levels apply
to agriculture based industries as well as consumer industries.
5) Drawl of funds to be regulated through quarterly statements.
1-Working Capital


The borrower should dictate before the commencement of each quarter the requirements of the
funds i.e. operating limits during the quarter. Drawings less than or in excess of the operative limit
so fixed (wiith a tolerable limit of 10% either way) but not exceeding the sanctioned limit should be
deemed to be an irregularity and appropriate corrective steps should be taken.
6) Penalty for default in submission of quarterly statements.
A penal interest of 1% p.a. on the total outstanding in the period of default may be levied for
default in submission of quarterly statements. At the same time notice should be given to the
borrower that if default persists, the bait may freeze the operation of his account. Where a
borrower has accounts with more than one bank the decision will be conveyed to the other banks
by the bank freezing the account.
7) Adhoc temporary limits.
In case of unforeseen circumstances and contingencies, the ban may consider granting adhoc or
temporary limits by charging additional interest of 1% p.a. on these accommodations.
Current Trends in MPBF
Kannan Committee Report.
In view of the ongoing liberalization in the financial sector, the Indian Banks Association (IBA)
constituted a committee headed by shri K. kannan chairman and Managing Director of Bank of
Baroda to examine all the aspects of working capital finance including assessment of maximum
Permissible bank finance (MPBF). The committee submitted its report on 25th february 1997. It
recommended that the airthmetical rigidities imposed by Tandon Committee (and reinforced by
chore committee) in the form of MPBF Computation so far been in practice should be scrapped.
The committee further recommended that freedom to each bank be given in regard to evolving its
own system of working capital finance for a faster credit delivery so as to serve various borrowers
more effectively. It also suggested that line of credit system (LCS) as prevalent in many advanced
countries should replace the existing system of assessment / fixation of sublimits within total
working capital requirements. The Committee proposed to shift emphasis from the Liquidity level
Lending (Security based lending) to the cash Deficit lending called Desirable Bank finance (DBF).
Some of the recommendations of the committee have already been accepted by the Reserve bank
of India with suitable modifications. The important measures adopted by RBI in this respect are
given below:-
1) Assessment of working capital finance based on the concept of MPBF, as recommended by
the Tandon Committee has been withdrawn. The banks have been given full freedom to
evolve an appropriate system for assessing working capital needs of the borrowers within the
guidelines and norms already prescribed by Reserve Bank of India.
2) The turnover method may continue to be used as a tool to assess the requirements of small
borrowers. For small scale and tiny industries this method of assessment has been extended
upto total credit limits of Rs. 2 crore as against existing limit of 1 crore.
3) Banks may now adopt Cash Budgeting System for assessing the working capital finance in
respect of large borrowers.
4) The banks have also been allowed to retain the present method of MPBF with necessary
modification or any other system as they deem fit.
1-Working Capital

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5) Banks should lay down transparent policy and guidelines for credit despensation in respect of
each broad category of economic category of economic activity.
6) The RBIs instructions relating to directed credit quantitative limits on lending and prohibitions
of credit shall continue to be in force. The present reporting system to RBI under the Credit
Monitoring Arrangement (CMA) shall also continue in force.
#or*at
Calculation of Working Capital Requirement
-
-
d. /re"ai d 0-"enses 10-"ense 2 /re-"ay%ent /eri od.
Total Current Assets (A)
d3usted ,orki ng Ca"i ta!
,orki ng Ca"i ta! 0sti %ation
b. ,ages o4s 1e-"ense - credi t "eri od.
c. 5verheads o4s 1e-"ense - credi t "eri od.
Total Current Liabilities (B)
Working Capital (A-B
6argi n
Current Assets
a. Cash at 'ank
b. Stock i n 7and
8aw 6ateria! 186C 2 7o! di ng /eriod.
,ork 9n /rogress 1Cost 2 :5C 2 7o!di ng /eri od.
Material
Labour
Overheads
;i ni shed Stock 1C5<S27o! di ng /eriod.
c. :ebtors 1C5S2Credi t /eri od.
Current Liabilities
a. Creditors 1/urchase - credi t "eri od.

"otes 5 Ass&*ptions
1) Debtors have been valued at Total Cost and not at selling price.
2) Production and sales have been assumed to have accrued evenly during the year.
/ondon Co**ittee 6 7eter*ination o% Ma.i*&* Per*issible ank
#inan$e 8MP#2
There are three methods for this purpose. These are as under
Three 6ethods for Ca!cu!ating 6/';

6ehod 1-= +(>21C-C?.
6ethod 2-= +(>2C - C?
1-Working Capital


6ethod #- = +(>21C-CC. - C?

"ote+6
For MPBF Current Assets are estimated at Balance-sheet value i.e. as per Total Approach.
C&rrent 9atio
There are two methods for the calculation of current ratio considering the Maximum Permissible Bank Finance. These are
a) If the Maximum Permissible Bank finance(MPBF) is to be used for acquiring Assets other
than Current Assets, then it is calculated as under
Current Assets
-------------------------------
CL + MPBF

b) If the Maximum Permissible Bank finance(MPBF) is to be used for acquiring or investing
Current Assets, then it is calculated as under
Current Assets + MPBF
------------------------------------------------
CL + MPBF

"&*eri$al Proble*s
Question No. 1
Following details have been provide to you, you are required to find out the estimated working capital. Add 10% to your
estimate figure to cover contingencies.
Proected P ! " #$c. is as under
!ales 21,$$,$$$
Cost of goods sold
6ateria! @,$$,$$$
,ages A 6.0-". *,((,$$$
:e". 2,&(,$$$
----------
1+,$$,$$$
?ess. Stock 1finished stock. 1,+$,$$$ 1(,#$,$$$
---------------
<ross /rofit (,+$,$$$
d%inistrative 0-". 1,#$,$$$
1-Working Capital


Se!!ing 0-". 1,&$,$$$ 2,+$,$$$
----------------
/rofit 'efore Ta- #,$$,$$$
Ta- 1,2$,$$$
---------------
/rofit after ta- 1,@$,$$$
---------------
Apart from above finished stock , goods equal to 15 per cent of year's production (in terms of
physical units) are in progress which on an average requires full material and only 40% of other
expenses. The company believes in keeping two months' consumption of material in stock.
Sale are 25% cash and rest at two months credit. All expenses are paid in next month. Supply of
material extend to one and a half month credit . State any assumptions that you have made.
Do the question when
1. It is an existing Organisation
2. New Organisation
Answer

Question 1 i t i s an e-i sti ng organisati on
Cash "otal
1,##,###.## 1,##,###.##
1,20,000.00 1,20,000.00
39,300.00 39,300.00
- 14,700.00
1,&(,($$.$$ 1,+$,$$$.$$
1,B+,&#+.($ 2,*2,($$.$$
*,#(,(+$.@# +,#B,@##.##
1,$$,$$$.$$ 1,$$,$$$.$$
(&,(@#.## (&,(@#.##
22,($$.$$ 22,($$.$$
1,++,$@#.## 1,++,$@#.##
&,(@,&@+.($ (,*2,+($.$$
&(,@&@.+( (*,2+(.$$
(,$&,##*.2( *,1B,$2(.$$
ssu%"ti onC- 5",9/ D c! ,9/, 5" 86DC! 86, 5/ ;in stD$
d. /re"ai d 0-"enses
c. :ebtors 1B$>of 1@$$$$$E*(($$$.E2+$$$$.-+(>-2412
b. ,ages o4s 1*(($$$-1412
c. 5verheads o4s 2+$$$$-1412
6argi n
Current Liabilities
a. Creditors 1@$$$$$. -1.(412
Current Assets
Labour & Exp (655000)x15%x40%
Dep
;i ni shed Stock 1@$$$$$E*(($$$.21$>
b. Stock i n 7and
8aw 6ateria! 1@$$$$$. - 2412
,ork 9n /rogress
Material (800000)x15%x100%
a. Cash at 'ank

"otes 5 Ass&*ptions
1-Working Capital


3) It is assumed that it is an established concern therefore opening stock & closing stock of raw
material and WIP is taken to be same. Howerver opening stock of finished goods is taken to
be zero as only closing stock of finished goods is given.
Question 1 i t i s an New organi sati on 7,-Q#$
Cash Tota!
1,(#,### 1,(#,###
1,20,000 1,20,000
39,300 39,300
14,700
1,&(,($$ 1,+$,$$$
1,B+,&#@ 2,*2,($$
*,((,(+1 +,(B,@##
1,#&,1*+ 1,#&,1*+
@$,#(@ @$,#(@
2,1&,(2( 2,1&,(2(
&,&1,$&* (,&(,#$@
&&,1$( (&,(#1
&,@(,1($ (,BB,@#B
Current Assets
,orking Ca"ita! 0sti %ati on
b. Stock i n 7and
8aw 6ateria! 1@$$$$$E12$$$$. - 2412
,ork 9n /rogress
Material (800000)x15%x100%
Labour (655000)x15%x40%
Overheads
;i ni shed Stock 1@$$$$$E*(($$$.21$>
c. :ebtors 1B$>of 1@$$$$$E*(($$$.E2+$$$$.-+(>-2412
a. Cash at 'ank
6argi n
Current Liabilities
a. Creditors 1@$$$$$E12$$$$E1(####. -1.(412
b. ,ages o4s 1*(($$$E#B#$$E2+$$$$.-1412

Question No. 2
Reliance furnishes following figures are for one year.
a. Sa!es - ho%e at one %onth credit 12,$$,$$$
- 0-"ort at three %onths credit (,&$,$$$
b. 6ateria!s used 1su""!iers a!!ows 2 %onths credit. &,2$,$$$
c. ,ages F
d. :e"reciation ($,$$$
e. 5ther 6anufacturing 0-" &,($,$$$
f. d%inistrative 0-"enses 1,($,$$$
g. Sa!es "ro%otion 0-" +(,$$$
h. 9nco%e ta- 1,($,$$$
Other details.
1) Suppliers allow 2 months credit
2) Wages are paid after 2 weeks
3) manufacturing and administration expenses are paid in next month.
4) Sales promotion expenses are paid in advance for three months.
5) Income tax is paid quarterly.
6) Selling price of exports is 10% less than the domestic price and company earns 25% on
domestic prices.
7) The company keeps one month's stock of each of raw material and finished goods.
1-Working Capital


8) Assume 15% safety Margin. Ignore WIP.
From the above calculate working capital requirement of the company.
Answer
Step 1
Prepare Trading and P&L to determine wages as balancing figure
Step 2
Prepare Statement of working capital Estimation.
To %at &,2$,$$$ 'y sa! es
To ,ages 2,$(,$$$ :o%e 12,$$,$$$
To :e" ($,$$$ 0-"ort (,&$,$$$
To other 6anu 0-" &,($,$$$
To d% 0-" 1,($,$$$
To sa! es /ro% 0-" +(,$$$
To 9nc Ta--ssu%ed -
To N/-ss bef Ta- #,B$,$$$
1+,&$,$$$ 1+,&$,$$$
"rading # $% a/c

Cash Tot
- -
#(,$$$ #(,$$$
- -
@B,(@# &'()*+
1,@$,((*
,('*(+++
1@,+($ 1@,+($
#,2#,@@B #,@2,($$
+$,$$$ +$,$$$
+,@@( +,@@(
($,$$$ ($,$$$
#+,($$
1,2+,@@( 1,*(,#@(
1,B*,$$& 2,1+,11(
2B,&$1 #2,(*+
2,2(,&$( 2,&B,*@#
12$$$$$21412 E (&$$$$2#412
a. Creditors 1/urchase - credi t "eri od. &.2$?22412
d. 9nc Ta-
,ork 9n /rogress
;i ni shed Stock at ;actory Cost 1Cost 21412.
c. :ebtors -1#?224#21412 E 1#?214#2#412
Current Liabilities
Current Assets
a. Cash at 'ank
b. Stock i n 7and
8aw 6ateria! &2$,$$$ 2 1412
6argi n

,orki ng Notes 8ate on :o%esti c /r :o%esti c 0-"ort
Sa! es 1$$ 12,$$,$$$ (,&$,$$$
/rofi t 2( #,$$,$$$ B$,$$$
Cost +( B,$$,$$$ &,($,$$$
Sa! es at do%esti c "ri ce 12,$$,$$$ *,$$,$$$
8ati o of sa!es 2 C1

1-Working Capital


"otes 5 Ass&*ptions

Question. 3
1997 [Q.No.4 (b)]
Prepare an estimate of net working capital requirements of zero company from the data given below:
Estimated Cost Per Amount Per Unit
Unit of production Rs.
Raw materials 100
Direct Labour 40
Overheads 80
--------
220
=====
The following is the additional information
Selling Price Per unit Rs. 240
Level of activity 1,04,000 units Per annum
Raw materials in stock average 4 Weeks
Work in Progress [Assume 100 Per cent stage
of completion of material and 50 Per cent
for labour and overheads] Average 2 weeks
Finished goods in stock Average 4 weeks
Credit allowed by suppliers Average 4 weeks
Credit allowed to debtors Average 8 weeks
Lag in payment of wages Average 1 1/2 weeks.
Cash at bank is expected to be Rs. 25,000. Assume production is sustained during 52 weeks of
the year.
Answer
1-Working Capital


Cash "otal
2(,$$$ 2(,$$$
@,$$,$$$ @,$$,$$$
4,00,000 4,00,000
80,000 80,000
1,60,000 1,60,000
1+,*$,$$$ -)(.+(+++
#(,2$,$$$ '/(0+(+++
-
*+,&(,$$$ +$,*(,$$$
@,$$,$$$ @,$$,$$$
1,2$,$$$ 1,2$,$$$
B,2$,$$$ B,2$,$$$
(@,2(,$$$ *1,&(,$$$
- -
(@,2(,$$$ *1,&(,$$$
Current Assets
a. Cash at 'ank
b. Stock i n 7and1Gni ts-86C-7/.
6argi n
a. Creditors 1$&$$$-1$$-&4(2
b. ,ages o4s 1$&$$$-&$-1.(4(2
;i ni shed Stock 1$&$$$-22$-&4(2
c. :ebtors 1$&$$$-22$ or 2&$ - @4(2
Current Liabilities
8aw 6ateria! 1$&$$$-1$$-&4(2
,ork 9n /rogress 1Gnits-Cost-:5C-7/.
Material 104000x100x100%x2/52
Labour 104000x40x50%x2/52
Overheads 104000x80x50%x2/52

Notes & Assumptions
1. :ebtors have been va!ued at Tota! Cost and not at se!!ing "rice.
Question. 4
2001 [Q.No.5 (b)]
AB Ltd. Provides the following particulars relating to its working:
Amount in Rs.
(Per Unit)
1) Cost/Profit Per unit:
Raw Material Cost 84
Direct Labour Cost 36
Overheads (All Variable) 36
-------------
Total Sales 156
Profit 44
------------
Selling Price 200
2) Average Amount of Backup Stock
raw material 1 Month
Work - in Progress (50% complete) 1/2 Month
Finished goods 1 Month
3) Credit allowed by Suppliers - 1 Month
4) Credit allowed to customers - 2 Months
5) Average time lag in the payment of wages 1/2 Month
Overhead Expenses 1 1/2 Months
6) Required Cash in hand and at bank Rs. 3,00,000.
7) 25% of the output is sold for cash.
1-Working Capital


For an expected sale of 1,00,000 units of AB Ltd., work out the working capital requirements
assuming that production is carried on evenly throughout the year and wages and overheads
accrue similarly.
Answer
Question &
Cash "otal
#,$$,$$$ #,$$,$$$
+,$$,$$$ +,$$,$$$
1,75,000 1,75,000
75,000 75,000
75,000 75,000
1#,$$,$$$ -'(++(+++
1B,($,$$$ ,*(++(+++
&(,+(,$$$ (1,2(,$$$
+,$$,$$$ +,$$,$$$
1,($,$$$ 1,($,$$$
&,($,$$$ &,($,$$$
1#,$$,$$$ 1#,$$,$$$
#2,+(,$$$ #@,2(,$$$
- -
#2,+(,$$$ #@,2(,$$$
6argi n
;i ni shed Stock 1(*21$$$$$21412
c. :ebtors 1(* or 2$$ 2 1$$$$$224122+(>
Current Liabilities
a. Creditors 1$$,$$$2@&21412
b. ,ages o4s 1$$,$$$2#*2$.(412
Current Assets
a. Cash at 'ank
8aw 6ateria! 1$$,$$$2@&21412
Material 100,000*84*50%*0.5/12
Labour 100,000*36*50%*0.5/12
Overheads 36*100000*50%*0.5/12

Notes & Assumptions
Question. 5
2003 [Q.No.3 (b)]
Estimate the net working capital of firm X on the basis of the given data:

Item Cost per unit
Rs.
Raw material 400
Direct Labour 150
Overheads (including Depreciation Rs.50) 300
-------------
Total 850
======
Additional Information:

Selling Prices Rs.1,000 Per unit
Output 52,000 units per annum
Raw material in stock Average 4 weeks
Work in progress
(Wages and overheads are 50% completion
Stage with full material consumption) Average 2 weeks
Finished goods in stock Average 4 weeks
Credit allowed by suppliers Average 4 weeks
1-Working Capital


Credit allowed to debtors Average 8 weeks
Cash at bank is expected to be Rs.50,000
(All sales are on credit basis and production takes place evenly during the 52 weeks of a year)
Answer
Question (
Cash "otal
($,$$$ ($,$$$
1*,$$,$$$ 1*,$$,$$$
8,00,000 8,00,000
1,50,000 1,50,000
2,50,000 3,00,000
#2,$$,$$$ #&,$$,$$$
*&,$$,$$$ @$,$$,$$$
12&,($,$$$ 1&#,$$,$$$
1*,$$,$$$ 1*,$$,$$$
- -
- -
1*,$$,$$$ 1*,$$,$$$
1$@,($,$$$ 12+,$$,$$$
- -
1$@,($,$$$ 12+,$$,$$$
Current Assets
a. Cash at 'ank
8aw 6ateria!
Material
Labour
Overheads
;i ni shed Stock
c. :ebtors
Current Liabilities
a. Creditors
b. ,ages o4s
6argi n

1. :e"reciation has been e-c!uded in ca!cu!ating ,orking Ca"ita! i.e. ,orking ca"ita! has been ca!cu!ated on
Cash Cost Basis.
2. :ebtors have been va!ued at Tota! Cost e-c!uding de"reciation and not at se!!ing "rice.
#. /roduction and sa!es have been assu%ed to have accrued even!y during the year.
Question. 6
2005 May 6 [Q.No.13 (a)]
XYZ Co. Ltd is a pipe manufacturing company. Its Production cycle indicates that materials, are
introduced in the beginning of the production cycle; wages and overhead accrue evenly through
out the Period of the cycle. Wages are paid in the next month following the month of accrual. Work
in Process includes full units of raw materials used in the beginning of the production Process and
50% of wages and overheads are supposed to be conversion costs. Details of Production Process
and the components of working capital are as follows:

Production of Pipes 12,00,000 units
Duration of the Production cycle One month
Raw materials inventory held One month consumption
Finished goods inventory held for Two months
Credit allowed by creditors One months
Credit given to debtors Two month
Cost Price of raw materials Rs. 60 Per unit
Direct Wages Rs. 10 Per unit
Overheads Rs. 20 Per unit
1-Working Capital


Selling Price of finished pipes Rs. 100 Per unit

Required to Calculate:
1. The a%ount of working ca"ita! required for the co%"any.
2. 9ts %a-i%u% /er%issib!e bank finance under a!! the three %ethods of !ending nor%s as suggested by the
Tondon Co%%ittee, assu%ing the va!ue of core current assetsC 8s. 1,$$,$$,$$$.
Answer
Question *
Cash Tota!
- -
*$,$$,$$$ *$,$$,$$$
60,00,000 60,00,000
5,00,000 5,00,000
10,00,000 10,00,000
-/+(++(+++ -/+(++(+++
-/+(++(+++ ,++(++(+++
&B(,$$,$$$ (1(,$$,$$$
*$,$$,$$$ *$,$$,$$$
1$,$$,$$$ 1$,$$,$$$
- -
+$,$$,$$$ +$,$$,$$$
&2(,$$,$$$ &&(,$$,$$$
- -
&2(,$$,$$$ &&(,$$,$$$
Current Assets
a. Cash at 'ank
b. Stock in 7and
8aw 6ateria! 12,$$,$$$2*$21412
,ork 9n /rogress
Material 12,00,000*60*100%*1/12
Labour 12,00,000*10*50%*1/12
Overheads 12,00,000*20*50%*1/12
;i ni shed Stock 12,$$,$$$2B$22412
c. :ebtors 12,$$,$$$2B$1or 1$$.22412
Current Liabilities
a. Creditors 112,$$,$$$2*$21412
b. ,ages o4s 112,$$,$$$21$21412
6argi n

Notes & Assumptions
2. /roduction and sa!es have been assu%ed to have accrued even!y during the year.
/ondon Co**ittee67eter*ination o% Ma.i*&* Per*issible ank
#inan$e 8MP#2
There are three %ethods for this "ur"ose. These are as under

Question. 7
2004 May 6 [Q.No.12 (a)]
The following annual figures relate to MNP Ltd.

Sales (at three months credit) Rs. 90,00,000
Materials consumed (suppliers extend
one and half months credit Rs. 22,50,000
1-Working Capital


Wages Paid (one month in arrear) Rs. 18,00,000
Manufacturing expenses outstanding at the end of
the year (Cash expenses are paid one month in arrear) Rs. 2,00,000
Total administrative expenses for the year (Cash
expenses are paid one month in arrear) Rs. 6,00,000
Sales Promotion expenses for the year
(Paid quarterly in advance) Rs. 12,00,000
The company sells its Products on gross-profit of 25% assuming depreciation as a Part of cost of
Production. It keeps two months stock of finished goods and one months stock of raw materials
as inventory. It keeps cash balance of Rs. 3,00,000.
Assume a 5% safety margin, work out the working capital requirements of the company on cash
cost basis. Ignore work-in-progress.
Answer

To 6ateria! 22,($,$$$ 'ys a! es B$,$$,$$$
To ,ages 1@,$$,$$$
To 6anu 0-" 2&,$$,$$$
To :e" '(++(+++
To </ 22,($,$$$
&+(++(+++ &+(++(+++
To d% 0-" *,$$,$$$ 'y </ 22,($,$$$
To Sa! es /ro%o 12,$$,$$$
To N/ 0(*+(+++
2$2,($,$$$ 2$2,($,$$$
Tradi ng A /? a4c

Cash Tota!
#,$$,$$$
1,@+,($$
-+()*(+++
,+(.,(*++
#,$$,$$$
#B,2(,$$$ -
2,@1,2($
1,($,$$$
2,($,$$$
*,@1,2($ -
#2,&#,+($
6argi n
Current Assets
a. Cash at 'ank
Material
Labour
b. Stock i n 7and
8aw 6ateria!
,ork 9n /rogress
Overheads
;i ni shed Stock 122.($?E1@.$$?E2&?.22412
c. :ebtors 122.($?E1@.$$?E2&.$$?E*.$$?E12.$$?.2#412
d. /re"ai d 0-"enses 12.$$?214&
Current Liabilities
a. Creditors 122,($,$$$21.($412.
b. ,ages o4s 11@.$$?21412.
c. 5verheads o4s 12&.$$?E*.$$?.21412

Notes & Assumptions
1. :ebtors have been va!ued at Tota! Cost e-c!uding :e"reciation and not at se!!ing "rice.
1-Working Capital


Question. 8
2002 Nov 9 [Q.No.11 (b)]
The following information has been extracted from the records of a Company:

Product cost sheet Rs./unit
Raw materials 45
Direct labour 20
Overheads 40
-----------
Total 105
Profit 15
-----------
Selling Price 120
=====
a) Raw materials are in stock on an average of two months.
b) The materials are in process on an average for 4 weeks. The degree of completion is 50%.
c) Finished goods stock on an average is for one month.
d) Time log in Payment of wages and overheads is 11/2 weeks.
e) Time log in receipt of Proceeds from debtors is 2 months.
f) Credit allowed by suppliers is one month.
g) 20% of the output is sold against cash.
h) The company expects to keep a cash balance of Rs. 1,00,000.
i) Take 52 weeks Per annum.
j) The company is Poised for a manufacture of 1,44,000 units in the year.
You are required to Prepare a Statement showing the working capital requirements of the
Company.
Answer
1-Working Capital


Question @
Cash Tota!
1,$$,$$$ 1,$$,$$$
1$,@$,$$$ 1$,@$,$$$
2,49,231 2,49,231
1,10,769 1,10,769
2,21,538 2,21,538
12,*$,$$$ -,(.+(+++
2$,1*,$$$ ,'(+0(+++
($,#+,(#@ (#,2(,(#@
(,&$,$$$ (,&$,$$$
@#,$++ @#,$++
1,**,1(& 1,**,1(&
+,@B,2#1 +,@B,2#1
&2,&@,#$@ &(,#*,#$@
- -
&2,&@,#$@ &(,#*,#$@
Current Liabilities
a. Creditors 1/urchase - credi t "eri od.
Overheads
;i ni shed Stock
c. :ebtors
b. Stock i n 7and
8aw 6ateria!
Current Assets
a. Cash at 'ank
6argi n
Labour
,ork 9n /rogress
Material

Notes & Assumptions
/'eory :&estions
Question. 10
2005 [Q.No.3 (a)]
Explain the factors affecting investment in working capital.
Answer
Factors affecting Working Capital of a firm.
There can be no standard or set rules to determine or estimate the Working Capital Requirements
of a business firm. An indepth analysis of several factors has to be made to arrive at the working
capital requirements of a firm. Such factors can be outlined as under:
1) Nature and Size of the Business.
Working Capital needs of a business are greatly influenced by the nature of the business. Trading
and financial firms have a very small investment in fixed assets. But these concerns require huge
amounts to be invested in Working Capital. Similarly, some seasonal business (cigarette
manufacturing) and construction company require large amounts to be invested in Working
Capital, especially as inventories. But businesses engaged in providing services (rather than
products) need large investments in fixed assets and very nominal investments in Working Capital.
1-Working Capital


2) Manufacturing or Operating Cycle.
Generally, the longer the manufacturing period, the higher is the need of Working Capital. A long
manufacturing time period demands more investment in working capital needs. Shorter the
manufacturing or operating cycle, smaller are the needs of working capital.
3) Frequency of Turnover of Sales and Debtors.
Generally, a firm having a high rate of turnover needs small amount of inventories. Similarly, a firm
enjoying a higher Debtors Turnover ratio also needs smaller amounts to be invested in its debtors.
So an efficient debt collection results in reduction of the amount invested in working capital.
4) Demand and Supply Conditions.
Firms may be faced with seasonal fluctuations in the demand for their products or availability of
raw material or finished inventories from the suppliers. In such cases, no doubt the investment in
inventories tends to rise. Such fluctuations (seasonal) not only affect working capital requirements
but these also affect the manufacturing process thereby indirectly affecting the working capital
requirements.
5) Overall Operating Efficiency.
Which ultimately means the optimum utilisation of all the variable resources incurring minimum
costs. This is the area where a good and efficient Finance Manager uses his abilities.
Question 11
2004 [Q.No.4 (a)]
Working capital management deals with decisions regarding the appropriate mix and level of
current assets and current liabilities. Elucidate the statement.
Answer
Working Capital Manage*ent 8WCM2.
Capital requirements of any business are divided into two categories:
a) Fixed Capital requirement, and
b) Working Capital requirement.
Like the management of long term assets, even the management of WC (Working Capital) also
involves analysis of the effects on its returns and risks. But in the management of fixed assets, the
time value of money assumes an important role . Hence, there arises the need of using
discounting and compounding techniques. This is usually not so in WCM. Larger investments in
WC, especially Cash or Bank Balances adversely affect firms profitability though it enhances
firms liquidity and ultimately improves its goodwill. Further, in the short run it is only through
adjustments in the levels of WC that the firm can make adjustments in the capital investments
since investments once made in long term or fixed assets are all irreversible.
1-Working Capital


WC is de%ined in t)o di%%erent )ays+
a) Gross WC:-
It means the firms investment in total Current Assets (C.A). Current Assets are those assets
which are converted into cash without any special efforts within a short period of time i.e., either
the year or the operating cycle whatever period it consists of.
b2 "et WC+6
It means the difference between the total Current Assets (CA) and Current Liabilities (CL.). CL are
those liabilities which have to be paid off or cleared or adjusted within a short period of time during
the normal operating cycle of the business. Thus, the net WC means that portion of Current
Assets which is financed through long term funds of the enterprise.
Excessive or inadequate investment in CA are both regarded as danger points, which ought to be
always avoided. An excessive investment CA leads to adverse effect on the profitability, whereas
inadequate investment similarly leads to insolvency as the firm may not be in a position to meet its
financial obligations in time as and when the need arises. A good financial manager should have
knowledge of both - (i) The sources of WC and (ii) avenues where surplus CA, if any, can be
invested. As such WCM refers to the management of the CA CL and the proper relationship
between these two. The main Purpose of WCM is to maintain a proper level of WC i.e., it has to be
neither inadequate nor excessive. For this, even the different components of the WC are to be
properly balanced. For example, the proportion of the inventory should not be very high in the total
CA. If its is so, it means unnecessary accumulation of obsolete or slow moving inventory.
Similarly, a very high proportion of accounts receivable also indicates a long credit period or a
weak Debtors Turn - over ratio. All this ultimately affects the firms profitability as well as its
liquidity.
Following are very important aspects of a good WCM:
a) Estimating a Proper amount of WC
b) Finding out sources from which these funds have to be obtained
c) Finding out avenues where surplus CA, if any, can be invested temporarily.
Question. 12
2002 [Q.No.3 (a)]
What are the two important characteristics of current assets? State their implications for working
capital management.
Answer
The working capital management refers to the management of working capital current assets of a
company. A companys working capital consists of its investment in current assets such as Cash
Bank Balance, Inventories, Receivables and Marketable securities.
Two important characteristics of current assets are:
1) Those which are convertible into cash or equivalent within a period of one year, and
2) Those which are required to meet day to day operations.
1-Working Capital


The need for working capital arises from two considerations:
1) Fixed assets be utilised at an optimum level if supported by sufficient working capital.
2) The working capital involves investment of funds of the company. If the working capital level
is not properly maintained and managed, it may result in unnecessary blocking of scare
resources of the company, Insufficient working capital can become a hindrance in smooth
working of the organisation. The working capital management includes the management of
the level of individual current assets as well as the management of total working capital. Each
individual current asset has unique characteristics which should be kept in mind while
deciding how much money should be invested in a current asset.
Question. 13
2001 [Q.No.1]
Explain briefly the following :
a) Temporary working capital;
Answer
Temporary Working Capital.
The amount of such capital keep fluctuating from time to time depending upon business activities.
Temporary Working Capital is represented by additional current assets required at different times
during the operating year. It also includes the additional working capital needed to meet the
requirements due to fluctuations in sales volume.
Permanent Working Capital is fixed over a period of time while Temporary Working Capital
fluctuates according to the requirements of the operational activities. Permanent Working Capital
is increasing over a period of time with corresponding increase in the level of business activity
while temporary Working Capital is fluctuating in increasing order.
Question. 14
1998 [Q.No.4 (b)]
State briefly the repercussions if a firm has paucity of working capital and excessive working
capital.
Answer
Adequacy of Working Capital (WC). From the point of view of good financial management, it is
always desired that a firm should have just adequate capital, especially working capital since it is
the WC requirements which keep on changing from time to time. It happens only in case of the
short terms WC requirements of a firm and not so much as regards the long term WC requirement.
Both the excessive or even insufficient WC (over-capitalisation as well as under - capitalisation)
situations are equally dangerous for the firm.
The Possible dangers of over - capitalisation can be as under:
1. 8esu!ts in unnecessary accu%u!ation of the inventories giving rise to %ore !osses of such nature.
2. 8esu!ts in a defective credit "o!icy thus showing a "oor co!!ection effort fro% debtors and %ore bad debts.
#. 0ffective "rofits dec!ine or rather s"ecu!ative "rofits tend to rise which adverse!y affect the dividend "o!icy.
1-Working Capital


Similarly, Possible dangers of under - capitalisation are:
1. :ue to non - avai!abi!ity of sufficient inventories, fir% %ay find it difficu!t to undertake "rofitab!e "ro3ects in
ti%e.
2. 5"erating "!ans %ay see% to be difficu!t to be i%"!e%ented.
#. 0ven fir%Hs fi-ed assets %ay re%ain id!e so%eti%es due to "aucity of ,C funds.
&. ;ir%Hs goodwi!! %ay a!so be affected because of its inabi!ity to honour its short ter% ob!igations.
1-Working Capital

Video Classes by CA M K Jain 9990112455 http://www.micecareer.com Page 1. !0

Operating Cycle
(Working Capital Cycles)
Working capital cycle is the total time required in realising all our cash. In other words it is the time-gap between payment
for input and realisation of cash on account of sales.
Following may be said to be the formula for operating cycle.

O = R + W + F + D - C

Particulars Period
8 D 8aw %ateria! storage "eriod
I 121or (2 or #*(. - 8aw %ateria! in hand 48aw %ateria! Consu%edJ
, D ,ork-in-"rogress "eriod
I 121or (2 or #*(. - ,9/ in hand 4Tota! /roduction CostJ
; D ;inished stock 7o!ding "eriod.
I 121or (2 or #*(. - ;inished Stock in hand 4 Cost of Sa!esJ
: D :ebtors rea!isation "eriod
I 121or (2 or #*(. - :ebtors 4Sa!esJ
---------------
Total

Less:-
C D verage "ay%ent "eriod a!!owed by creditors.
I 121or (2. - Creditors 4/urchases of 8aw %ateria! Consu%edJ

========
1-Working Capital


Numericals
Question No. 15
From the following information, compute operating cycles for materials and for other elements of production cost in number
of day ;-
1) Assume an year of 350 days. 2) Payments to creditors after 16 days.
3) Debtors Rs. 4,800. 4) Raw Material consumption Rs. 44,000.
5) Total production cost Rs. 1,00,000. 6) Total cost of sales : Rs. 1,05,000.
7) Sales for the year Rs. 1,60,000. 8) Raw Material stock Rs. 3,500.
1uestion no. -* 2at %a3 45p
8 #($ - #($$4&&$$$ 2+.@& - -
, #($22($$41$$$$$ @.+( @.+( @.+(
; #($2#$$$41$($$$ 1$.$$ 1$.$$ 1$.$$
: #($ - &@$$41*$$$$ 1$.($ 1$.($ 1$.($
1-. C 11*.$$. 11*.$$. 11*.$$.
&1.$B 1#.2( 1#.2( 6perating C7cle

Question No. 16
Part (a)
From the following details calculate working capital requirement of the company.
1) Monthly production and sale is 12,000 units
2) Sales price is Rs. 250
3) Cost
Material 80
Labour 30
Fixed overhead 20
Variable overhead 40
Profits balance
4) Raw materials are in stock for 1 month,
5) Production process (WIP) 1/2 month,
6) Finished stock holding period 1 month,
7) credit allowed to Debtors 2 months,
8) credit allowed by materials suppliers 1 month,
9) lag in payment of wages half months
10) lag in payment of overhead 3 weeks
Determine
1) Working capital
2) operating cycle for material, labour and overheads.
3) Total operating cycle.

part(b)
Production manager has made a proposal of introducing two shifts of 8 hours each , instead of one shift of 9 hours, as earlier
being in operation. Assuming that employees will receive same remuneration as before for one shift. Fixed overhead are likely to
increase by 60%. In one month company works for 25 days.
Determine
1) Working capital
2) operating cycle for material, labour and overheads.
3) Total operating cycle.
1-Working Capital


2aterial %a3our 6/8
8 1.$$ - -
, 142 142 142
; 1.$$ 1.$$ 1.$$
: 2.$$ 2.$$ 2.$$
1-. C 11.$$. - 142 - #4&
5"erating Cyc! e #.($ #.$$ 2.+(
1uestion 9o. -.(a

Current Assets Cash
a. Cash at 'ank
b. Stock i n 7and
8aw 6ateri a! 1&&$$$2@$21412 B,*$,$$$
,ork 9n /rogress
Material 144000*80*100%*0.5/12 4,80,000
Labour 90,000
Overheads 1,80,000 7,50,000
;i ni shed Stock 2$,&$,$$$
c. :ebtors 1&&$$$21+$22412 &$,@$,$$$
Total Current Assets (A) +@,#$,$$$
Current Liabilities
a. Credi tors 1/urchase - credit "eri od. B,*$,$$$
b. ,ages o4s 1e-"ense - credit "eri od. 1,@$,$$$
c. 5verheads o4s 1e-"ense - credi t "eriod.-6anu (,&$,$$$
Total Current Liabilities (B) 1*,@$,$$$
Working Capital (A-B .-(*+(+++
,orki ng Ca"i ta! 0sti %ati on

Working 6ld 9ew
Gni ts-"er %onth 12$$$4B 2 1* 12,$$$.$$ 21,###
6ateri a! @$.$$ @$.$$
?abour #$ 2 B4@ #$.$$ ##.+(
Kari ab! e 5v &$.$$ &$.$$
;i -ed 5v 2$212$$$21*$>421### 2$.$$ 1@.$$
TC 1+$.$$ 1+1.+(
/rofi t @$.$$ +@.2(
S/ 2($.$$ 2($.$$
1uestion 9o. -.(3

2aterial %a3our 6/8
8 1.$$ - -
, $.( 2 B41* $.2@12( $.2@12( $.2@12(
; 1.$$ 1.$$ 1.$$
: 2.$$ 2.$$ 2.$$
1-. C 11.$$. 1$.($. 1$.+(.
5"erating Cyc! e #.2@ 2.+@ 2.(#
6perating C7cle

1-Working Capital

Video Classes by CA M K Jain 9990112455 http://www.micecareer.com Page 1. !!

Current Assets Tota!
a. Cash at 'ank
b. Stock i n 7and
8aw 6ateri a! 2(*k2@$21412 1+,$*,**+
,ork 9n /rogress
Material 256k*80*9/32/12 4,80,000
Labour 1,01,250
Overheads 1,74,000 7,55,250
;i ni shed Stock 2(*$$$21+1.+(21412 #*,*&,$$$
c. :ebtors 2(*$$$21+1.+(22412 +#,2@,$$$
Total Current Assets (A) 1#&,(#,B1+
Current Liabilities
a. Credi tors 1/urchase - credit "eri od. 1+,$*,**+
b. ,ages o4s 1e-"ense - credit "eri od. #,*$,$$$
c. 5verheads o4s 1e-"ense - credi t "eriod.-o4h B,2@,$$$
Total Current Liabilities (B) 2B,B&,**+
Working Capital (A-B -+0(*&(,*+
Working Capital 4stimation

Question. 17
1998 [Q.No.2 (b)]
From the following information taken from the books of a manufacturing concern, compute the
operating cycle in days:

Period covered 365 days
Average period of credit allowed by suppliers 16 days
Rs. (000)
Average of total debtors outstanding 480
Raw materials consumption 4,400
Total Production cost 10,000
Total Cost of Sales 10,500
Sales for the year 16,000
Value of average stock maintained:
Raw materials 320
Work in Progress 350
Finished goods 260
Answer

Particulars Period
R = Raw material storage period
I 121or (2 or #*(. - 8aw %ateria! in hand 48aw %ateria! Consu%edJ
#*( - #2$4&&$$ 2*.((
, D ,ork-in-"rogress "eriod
I 121or (2 or #*(. - ,9/ in hand 4Tota! /roduction CostJ
#*( - #($41$,$$$ 12.+@
; D ;inished stock 7o!ding "eriod.
I 121or (2 or #*(. - ;inished Stock in hand 4 Cost of Sa!esJ
#*( - 2*$41$,($$ B.$&
: D :ebtors rea!isation "eriod
I 121or (2 or #*(. - :ebtors 4 Sa!esJ
1-Working Capital


#*( - &@$41*,$$$ 1$.B(
---------------
"otal *&.',

Less:-
C D verage "ay%ent "eriod a!!owed by creditors.
I 121or (2. - Creditors 4/urchases of 8aw %ateria! Consu%edJ
1*.$$
-----------------
&#.#2
DDDDDDDD
&# days a""ro-i%ate!y
Question. 18
2002 [Q.No.2 (b)]
ABC Ltd. expects of its cost of goods sold for 2000 - 2001 to be Rs. 600 lakhs. The expected
operating cycle is 90 days. It wants to keep a minimum cash balance of Rs.1 lakh. What is the
expected working capital requirement? Assume a year consists of 360 days.
Answer
Net Working Capital excluding cash
= Cost of Goods Sold x Operating Cycle/ 52 or 365 or 12
= 6,00,00,000 x 90/360 = 1,50,00,000
Add Cash = 1,00,000
---------------
Total 1,51,00,000
/'eory ;&estions
Question. 19
[Q.No.3. (a)]
Explain in brief the operating cycle of a manufacturing firm.
Answer
Operating Cycle (OC):-
A firm needs some investment in its working capital for running its day to day business smoothly.
This investment in working capital may be long term or short term depending upon its needs. This
investment in working capital depends on the Operating Cycle of the firm or business. Generally,
the investment in the current assets (net) of the firm turns over several times in a year. Such an
investment in current assets may be e.g. in its inventories, account receivables, cash etc. This
investment gets realised during a period called OC which is usually much less than a year. Thus,
OC is the duration or time during which most of the current assets of the business get converted in
cash or cash equivalents. Usually, OC of a manufacturing firm consists of stages such as:
a) Purchases of Raw materials for cash or credit.
b) Converting of Raw materials into Work - in -progress (WIP)
1-Working Capital


c) Selling finished goods thus converting them into direct cash (in case of cash sales) or into
account receivables (in case of credit sales)
d) Receiving money or bills receivable etc. from debtors
e) Realising bills receivable
f) Paying creditors
Thus the length of OC depends on Inventory conversion period and debt conversion period. The
inventory conversion period means the time raw materials take to get converted into WIP plus time
taken by WIP to get converted into finished goods and time the finished goods take to get sold.
Further, debt conversion period means the time required to collect debts i.e., debt collection
period. So OC means total of both of these times i.e., Inventory Conversion Period and Debt
Conversion Period.
1-Working Capital


Self- Assessment on Working Capital
Management (Answers at End
Question. 21
HI Tech. plans to sell 30,000 units next year. The expected cost of goods sold is as follows:

Rs. (Per unit)
Raw materials 100
Manufacturing expenses 30
Selling, administration and financial expenses 20
Selling price 200
The duration at various stages of the operating cycle is expected to be as follows:

Raw materials stage 2 month
Work in process stage 1 month
Finished goods stage 1/2 month
Debtors stage 1 month
Assuming the monthly sales level of 2,500 units:
1) Calculate the amount of various current assets; and
2) Estimate the gross working capital requirement if the desired cash balance is 5% of the gross
working capital requirements.
Answer

1) Raw Material Rs. 5,00,000. Work in process Rs. 2,87,500, Finished goods - Rs. 1,62,500
Debtors Rs. 5,00,000;
2) Gross Working capital - Rs. 15,26,316.

Question. 22
While Preparing a project report on behalf of a client you have collected the following facts.
Prepare an estimate of:
1) Working Capital
2) Cash cost of Working Capital
3) Maximum Bank Borrowings permissible under method I, II and III of Tandon committee norms
and
4) Current Ratio under all three methods.

Amount Per unit
Rs.
Estimated cost per unit of production
Raw materials 100
1-Working Capital


Direct labour 40
Overheads (inclusive of depreciation) Rs. 20 Per unit 80
------------
Total cost 220
======
Selling Price Rs. 240 Per unit
Level of activity 1,04,000 units of Production per annum
Raw material in stock average 4 weeks
Work - in - progress assume 100% completion
Stage for material and 50% for labour & Overheads average 2 weeks
Finished goods in stock average 4 weeks
Credit allowed by suppliers average 4 weeks
Credit allowed to debtors average 8 weeks
Lag in payment of wages average 1-1/2 weeks
Cash at bank is expected to be Rs. 25,000.
Note:
Hard Core Current Assets are 30% of the total Current Assets.
Answer
1. 8s. *1,&(,$$$
2. 8s. (#,$(,$$$
#. 9 Nor% - 8s. &*,$@,+($, 99 8s. &#,+@,+($, 999 8s. 2+,@B,12(
&. Current 8atio 1.2@ C 1,1## C 1,1,B$& C 1
Answer

Assumption
1. 7ere Current 8atio has been ca!cu!ated on the assu%"tion that funds raised by 6/'; wi!! be invested in ;i-ed
ssets i.e C8 has been ca!cu!ated after 6/'; has been invested in ;i-ed assets.

Question. 23
On 1st January, the Board of Directors of XYZ Ltd. wishes to know the amount of working capital
that will be required to meet the programme of activity they have planned for the year. From the
following available information, Prepare:
a) A working capital requirement and
b) An estimated profit and loss account and balance sheet at the end of the year:
1) Issued and paid up share capital Rs. 2,00,000.
2) 5% debentures (secured on assets) Rs. 50,000.
3) Fixed assets valued at Rs. 1,25,000 on 31.12.1193.
4) Production during previous year was 60,000 units. It is planned that this level of activity
should be maintained during the present year.
5) The expected ratios of cost selling price are raw materials 60% direct wages 10% and
overheads 20%.
1-Working Capital


6) Raw materials are expected to remain in stores for an average of two months before issued
to production.
7) Each unit of production is expected to be in process for in process for one month (assume full
unit of raw materials required in the beginning of manufacturing other conversion costs are
50%).
8) Finished goods will safely in warehouse for approximately three months.
9) Creditors allow credit for two months from the date of delivery of raw materials.
10) Selling Price per unit is Rs. 5.
11) Credit allowed to debtors in three months from the date of despatch.
12) There is regular production and sales cycle.
State your assumptions , if any.
Answer
a) [Rs. 1,61,250] b) [Balance Sheet Rs. 3,16,250, Retained Earnings - Rs. 27,500]
Question. 24
X Ltd. sells goods at a gross profit of 20%. It includes depreciation as part of cost of production.
The following figures for the 12 months period ending 31st December 1996 are given to enable
you to ascertain the requirements of working capital of the company on a cash cost basis. In your
workings, you are required to assume that:
1) A safety margin of 15% will be maintained.
2) Cash is to be held to the extent of 50% of current liabilities.
3) There will be no Work - in - Progress
4) Tax is to be ignored.
Stocks of raw materials and finished goods are kept at one months requirements
All working notes are to form part of your answer.

Rs.
Sales at 2 months credit 27,00,000
Materials consumed (Suppliers credit is for 2 months) 6,75,000
Wages (paid at the beginning of the next month) 5,40,000
Manufacturing expenses outstanding at the end of the year
(Cash expenses are paid one month in arrear) 60,000
Administrative expenses (paid as above) 1,80,000
Sales promotion expenses - paid quarterly and in advance 90,000
Answer
[Cash cost of Working capital Requirement - Rs. 5,64,938]

Question. 25
1-Working Capital


Estalla Garment Co. Ltd. is a famous manufacturer and exporter of garments to the European
countries. The finance manager of the company is preparing its working capital forecast for the
next year. After carefully screeing all the documents, he collected the following information:
Production during the previous year was 15,00,000 units. The same level of activity is intended to
be maintained during the current year.
The expected ratios of cost to selling price are:

Raw materials 40%
Direct wages 20%
Overheads 20%
The raw materials ordinarily remain in stores for 3 months before production. Every unit of
production remains in the process for 2 months and is assumed to be consisting of 100% raw
material, 50% wages and overheads. Finished goods remain in ware house for 3 months. Credit
allowed by the creditors is 4 months from the date of the delivery of raw material and credit given
to debtors is 3 months from the date of dispatch.
The estimated balance of cash to be held Rs. 2,00,000
Lag in payment of wages 1/2 month
Lag in payment of expenses 1/2 month.
Selling Price is Rs. 10 per unit. Both production and sales are in a regular cycle. You are required
to make provision of 10% for contingency (except cash). Relevant assumptions may be made.
You have recently joined the company as an assistant finance manager. The job of preparing the
forecast statement has been given to you. You are required to prepare the forecast the working
capital needs of the company.
Answer
[Working Capital Requirement Rs. 84,50,000]

Question. 26
On 1st January, the Managing director of A Ltd. wishes to know the amount of working capital that
will be required during the year. From the following information prepare the working capital
requirements forecast. Production during the previous year was 60,000 units. It is planned that this
level of activity would be maintained during the present year. The expected ratios of the cost to
selling prices are raw materials 60%. Direct wages 10% and Overheads 20%. Raw materials are
expected to remain in store for an average of 2 months before issue to production. Each unit is
expected to be in process for one month, the raw materials being fed into the pipeline immediately
and the labour and overhead costs accruing evenly during the month. Finished goods will stay in
the warehouse awaiting despatch to customers for approximately 3 months. Credit allowed by
creditors is 2 months from the date of delivery of raw materials. Credit allowed to debtors is 3
months from the date of despatch. Selling price is Rs. 5 per unit. There is a regular production and
sales cycle. Wages and overheads are paid on the first of each month for the previous month. The
company normally keeps cash in hand to the extent of Rs. 20,000.
Answer
1-Working Capital


[Working Capital Requirement - Rs. 1,73,750]

Question. 27
Following annual figures relate to XYZ Co.
Rs.
Sales (at two months credit) 36,00,000
Materials consumed (Suppliers extend two months credit) 9,00,000
Wages paid (monthly in arrear) 7,20,000
Manufacturing expenses outstanding at the end of the year 80,000
(Cash expenses are paid one month in arrear)
Total administrative expenses, paid as above 2,40,000
Sales promotion expenses, paid quarterly in advance 1,20,000
The company sells its products on, gross profit of 25% counting depreciation as part of the cost of
production. It keeps one months stock each of raw materials and finished goods, and a cash
balance of Rs. 1,00,000.
Assuming a 20% safety margin, work out the working capital requirements of the company on
cash cost basis. Ignore Work - in - progress.
Answer
[Working Capital Requirement - Rs. 7,20,000]

Question. 28
The following annual figures relate to MNP Ltd.:

Sales (at three months credit) Rs. 90,00,000
Materials consumed (Suppliers extend one and half months credit Rs. 22,50,000
Wages Paid (one month in arrear) Rs. 18,00,000
Manufacturing expenses outstanding at the end of the year Rs. 2,00,000
(Cash expenses are paid one month in arrear)
Total administrative expenses for the year
(Cash expenses are paid one month in arrear) Rs. 6,00,000
Sales promotion expenses for the year (paid quarterly in advance) Rs. 12,00,000
The company sells its products on gross profit on 25% assuming depreciation as a part of cost of
production. It keeps two months stock of finished goods and one months stock of raw materials
as inventory. It keeps cash balance of Rs. 2,50,000. Assume a 5% safety margin, work out the
working capital requirements of the company on cash cost basis. Ignore work - in - Progress.
Answer
[Cash Cost of Working Capital Requirement - Rs. 31,93,750]

1-Working Capital


Question. 29
Strong Cement Company Ltd. has an installed capacity of producing 1.25 lakhs tones of cement
per annum; Its present capacity utilisation is 80%. The major raw material to manufacture cement
is limestone which is obtained on cash basis from a company located near the plant. The company
produces cement is 200 Kgs. drum. from the information given below, determine the cash cost of
net working capital requirement of the company for the current year cost structure per drum of
cement (estimated is as under):

Rs.
Gypsum 25
Limestone 15
Coal 30
Packaging material 10
Direct labour 50
Factory overheads (including depreciation of Rs. 10) 30
Administrative overheads 20
Selling Overheads 25
------------
Total Cost 205
Profit margin 45
------------
Selling Price 250
Add: Sales tax (10% of selling price) 25
------------
Invoice Price to consumer 275
======
1) Desired holding period of material:
Gypsum 3 months
coal : 2.5 months
Limestone: 1 month
Packing material: 1.5 months
2) The Product is in process for a period of 1/2 month (Assume full units of materials, namely:-
gypsum, limestone, and coal are required in the beginning: other conversion costs are to be
taken at 50%).
3) Finished goods are in stock for a period of 1 month before they are sold.
4) Debtors are extended credit for a period of 3 months.
5) Average time lag in payment of wages is approximately 1/2 month and of overheads : 1
month.
6) Avearge time lag in payment of sales tax is 11/2 months.
7) The credit period extended by various suppliers are
Gypsum - 2 months:
Coal - 1 month
Packing material - 1/2 month
8) Minimum desired cash balance is Rs. 25 lakh. You may state your assumptions, if any.
1-Working Capital


9) Packing material is used for packing finished material at the time of sale.
Answer
[Working Capital Requirement - Rs. 3,666.667 (000)]
Hints:-
1) Packing material is to be taken as part of sales overhead
2) Value finished goods at Factory Cost
3) Value debtors at total cost plus sales tax.
4) Do not include cost of Packaging in Inventory valuation.
5) Include sales tax o/s in current liabilities.
Total production = 1.25 lacs x 1000 x 80% = 1000 lac kg
One Drum is of 200 kgs.
Therefore,

Total Production 10,00,00,000
No of Drums = ------------------------------------------- = ------------------------------- = 5,00,000
Weight of one Drum 200

Question. 30
PQ Ltd. a company newly commencing business in 1996 has the under mentioned Projected
Profit and loss Account:
Sales 2,10,000
Cost of goods sold (1,53,000)
----------------
Gross Profit 57,000
Administrative expenses 14,000
Selling Expenses 13,000 (27,000)
Profit before tax 30,000
Provision for taxation (10,000)
---------------
Profit after tax 20,000
The cost of goods sold has been arrived at as under:-

Material used 84,000
Wages and manufacturing expenses 62,500
Depreciation 23,500
---------------
1,70,000
Less: Stock of finished goods
(10% of goods produced not yet sold) (17,000)
----------------
1,53,000
========
1-Working Capital


The figures given above relate only to finished goods not to Work - in - Progress. Goods equal to
15% of the years Production (in term of physical units) will be in process on the average requiring
full materials but only 40% of the other expenses. The company believes in keeping materials
equal to two months consumption in stock. All expenses will be paid one month in advance.
Suppliers of materials will be extend 1 - 1/2 months credit. Sale will be 20% of cash and the rest at
two months credit. 70% of the income tax will be paid in advance in quarterly installments. The
company wished to keep Rs. 8,000 in cash.
Prepare an estimate of :
1) Working Capital, and 2) Cash Cost of working Capital.
Note: All working should form part of your answer.
Answer
1) [Rs. 77,543] 2) [Rs. 66,963]

Assumptions:-
1) Since it is a newly established organisation therefore its opening stock of Raw material, WIP
and finished goods is zero. Therefore,
a) Matereial Consumed = Material consumed given + consumed in Closing WIP
b) Material purchased = Material Consumed + Closing stock of Raw material
c) Expenses = Expenses given + share in Closing WIP

Question. 31
M.A. Ltd. is commencing a new project for manufacture for a plastic component. The following
cost information has been ascertained for annual production for 12,000 units which is the full
capacity.

Cost Per
unit (Rs.)
Materials 40
Direct labour and variable expenses 20
Fixed manufacturing expenses 6
Depreciation 10
Fixed administration expenses 4
-----------
80
=====
The selling price per unit is expected to be Rs. 96 and the selling expenses Rs. 5 per unit 80% of
which is variable. In the first two years of operations, production and sales are expected to be as
follows:
Year Production Sales
(No. of units) (No. of units)
1 6,000 5,000
2 9,000 8,500
To assess the working capital requirements, the following additional information is available:
a) Stock of materials 2.25 months average consumption
1-Working Capital


b) Work - in - Process NIL
c) Debtors 1 months average sales
d) Cash balance Rs. 10,000
e) Creditors for supply of materials 1 months average purchase during the year
f) Creditors for expenses 1 months average of all expenses during the year
Prepare, for the two years:
1) A Projected Statement of Profit / Loss (Ignoring taxation): and
2) A Projected statement of working capital requirements.
Answer
1) Profit Loss - (60,000) and 20,000
2) Rs. 1,40,583 and 2,06,792
Hint:- Calculate Working Capital by Total Approach

Question. 32
BS. Ltd. has been operating its manufacturing facilities till 31.3.1999 on a single shift working with
the following cost structure:
Per unit Rs.
Cost of Materials 6.00
Wages (40% fixed) 5.00
Overheads (80% fixed) 5.00
Profit 2.00
Selling Price 18.00
Sales during 1998 - 1999 - Rs. 4,32,000
As at 31.3.99 the company held: Rs.
Stock of raw materials (at cost) 36,000
Work - in - Progress (valued at prime cost) 22,000
Finished goods (valued at total cost) 72,000
Sundry Debtors 1,08,000
In view of increased market demand, it is proposed to double production by working an extra shift.
It is expected that a 10% discount will be available from suppliers of raw materials in view of
increased volume of business. Selling price will remain the same. The credit period allowed to
customers will remain unaltered. Credit availed of from suppliers will continue to remain at the
present level i.e. 2 months. Lag in payment of wages and expenses will continue to remain half a
month.
You are required to find
a) The additional working capital requirement, if the policy to increase output is implemented.
b) New and Old Operating Cycle.
Answer
[Net Additional Working Capital Requirement - Rs. 94,800]

1-Working Capital


Important note
Although the prime cost is always variable, but due to the nlanguage of the question even the fixed wages have been taken as part
of prime cost.

Calculation of units sold

Sales 432000
Units sold = ------------------ = ------------------- = 24000 units
SP 18
After Double Shift Production and Sales will get doubled and the old and new cost sheet will be as
under

Calculation of Raw material holding period

Raw material Holding Period 36,000
= --------------------------------------------------------- x 12 = ------------------------------ x 12 = 3 months
Cost of Raw material consumed 6 x 24000

Calculation of WIP period

WIP Stock 22,0000
WIP Period = ---------------------------------- x 12 = ----------------------- x 12 = 1 month
Cost of Production 264000

Important note
If we assume that the incomplete work of one shift will be completed in the other shift then the new WIP period will be
half of the old WIP period i.e. 1/2 month.

Calculation of Finished Stock holding period

1-Working Capital


Finished Stock 72,000
= ------------------------------------------- = ----------------------------- x 12 = 2.25 months
Cost of Production 3,84,000

Calculation of Average Collection Period

Debtors 1,08,000
= ------------------------ = ------------------------- x 12 = 3 months
Sales 4,32,000

Calculation of Average Payment Period

2 months - Given in the Question

Calculation of Wages and Expenses Payment Period

1/2 months - Given in the Question

Question.33
From the following data, compute the duration of the operating cycle for each of the two years and
comment on the increase decrease:
(Rs. 000)
Year 1 Year 2
Stocks:
Raw Materials 20 27
Work - in - Progress 14 18
Finished Goods 21 24
Purchases 96 135
Cost of Goods sold 140 180
Sales 160 200
Debtors 32 50
Creditors 16 18
Assume 360 days per year for computational Purposes.
Answer
[Operating Cycle 177 days 198 days]
Raw material Consumed = Opening Stock + purchase - Closing stock
1-Working Capital


Year 1 = 0 + 96 - 20 = 76
Year 2 = 20 + 135 - 27 = 128

Question.34
The following information is available for Swagat Ltd.
(Rs. Million)
Average stock of raw materials and stores 200
Average Work - in - Progress 300
Average finished goods inventory 180
Average accounts receivable 300
Average accounts payable 180
Average raw materials and stores purchased on
credit and consumed per day 10
Average Work - in - progress value of raw materials
committed per day 12.5
Avearge cost of goods sold per day 18
Average sales per day 20
You are required to calculate:-
1) Duration of raw material stage.
2) Duration of Work - in - Progress stage.
3) Duration of finished goods stage.
4) Duration of accounts receivable stage.
5) Duration of accounts payable stage. and
6) Duration of the operating cycle.
Answer
1) 20 Days. 2) 24 Days. 3) 10 Days. 4) 15 Days. 5) 18 Days. 6) 51 Days.
Question.35
The following data are available for Optex Limited.
(Rs. in lakhs)
19 x 6 19 x 5 19 x 4
1. Opening Balance of

a) Raw Materials, stores etc. 85 80 78
b) Work - in - Progress 24 20 18
c) Finished goods 100 90 85
d) Book debts 150 140 135
e) Trade Creditors 105 80 75

2. Closing Balance of

a) Raw Materials, stores etc. 88 85 80
b) Work - in - Progress 25 24 20
1-Working Capital


c) Finished goods 98 100 90
d) Book debts 152 150 140
e) Trade Creditors 110 105 80

3. Purchase of raw materials Stores etc. 320 300 250
4. Consumption of raw materials, Stores etc. 317 295 248
5. Manufacturing expenses 160 145 125
6. Depreciation 25 20 18
7. Excise Duty 65 60 45
8. Administration & Financial and selling costs 95 80 65
9. Sales 825 800 640
Required: Calculate the duration of:
a) Raw materials and stores storage period.
b) Work - in - Process Period.
c) Finished goods Storage period.
d) Debtors collection period.
e) Creditors payment period, and
f) Operating Cycle.
Answer
a) [115, 101, 98 days.] b) [18, 17, 18 days] c) [73, 66, 63 days]
d) [77, 65, 66 days] e) [112, 111, 121 days] f) [171 days, 140 days,
124 days.]

Question.36
The following is the projected Balance Sheet of Excel Ltd. as on 31.3.2004.
Balance Sheet as on 31.3.2004

Liabilities Rs. Lakhs Assets Rs. Lakhs
Share capital 100 Fixed Assets 800
Reserves & surplus 150 Current Assets 1,000
Secured Loans 450 Miscellaneous expenditure 150
Unsecured loans 1,050
Current Liabilites 200
-------------- -------------
1,950 1,950
======== =======
1-Working Capital


The following are the other information:
1) Secured loans inlude installments payable to financial institutions before 31-3-2004 Rs. 100
lakhs
2) Unsecured loans include fixed deposits from public amounting to Rs. 400 lakhs out of which
Rs. 100 lakhs are due for repayment before 31.3.2004.
3) Unsecured loans include Rs. 600 lakhs of zero interest fully convertible debentures dues for
conversion on 30 - 9- 2003.
4) Current assets include deferred receivables due for payment after 31-3-2004 Rs. 40 lakhs.
5) The company has introduced a voluntary retirement scheme for workers costing Rs. 40 lakhs
payable on 31 - 3 - 2008 and this amount is included in current liability.
You are required to calculate from the above information the maximum permissible bank finance
by all the three methods for working capital as per Tandon Committee norms. For your exercise,
assumes that core current assets constitute 25% of the current assets.
Answer
[MPBF 1st Method = Rs. 450 lakhs, 2nd Mehod = Rs. 3,600 lakhs, 3rd Method = Rs. 180 lakhs]

Question.37
Following is the balance Sheet of XYZ Ltd. Calculate the amount of maximum permissible bank
finance by all the three methods for working capital as per Tandon Committee norms. You are
required to assume the level of core current assets to be Rs. 30 lakhs.
You are also required to calculate the current ratios under each method and compare the same
with the current ratios as recommended by the commitee, assuming that the bank has granted
MPBF.
Balance Sheet of XYZ Ltd. as on 31st March, 2000
Liabilities Assets
Equity Shares Rs. 10 each 200 Fixed Assets 500
Retained earnings 200 Current Assets
11% Debentures 300 Inventory:
Public deposits 100 Raw materials 100
Trade Creditors 80 W.I.P. 150
Bills Payable 100 Finished goods 75 225
Debtors 100
Cash / Bank 55 480
------------- ------------
980 980
======= ======
Answer
[MPBF: I Method = Rs. 225 lakhs, II Method = Rs. 180 lakhs, III Method = Rs. 157.5 lakhs; Current
Ratios: 1st Method = 1.74 : I and II Method = 1.83 : 1, III Method = 1.89 : 1]
1-Working Capital


Answer
Assumption
1) Here Current Ratio has been calculated on the assumption that funds raised by MPBF will be
held by organisation in the form of Current assets i.e CR has been calculated immediately
after getting MPBF
1-Working Capital


Answers
Current Assets Working "otal Working
a. Cash at 'ank +*,#1* .$(-
b. Stock in 7and
8aw 6ateria! #$$$$21$$22412 (,$$,$$$ (,$$,$$$
,ork 9n /rogress
Material 30000*100*100%*1/12 2,($,$$$ 2,($,$$$
Manu Exp 30000*30*50%*1/12 #+,($$ #+,($$
Finished !tock #$$$$21#$2$.(412 1,*2,($$ 1,*2,($$
c :e3tors #$$$$22$$21412 (,$$,$$$ (,$$,$$$
d. /re"aid 0-"enses
Total Current Assets (A) 1(,2*,#1* 5
.$(- E(? E2.($? E#+,($$ E 1*2,($$ E($$,$$$ D -
- D 1(2*#1*
1uestion ,-

Current Assets Cash Cost "otal
a. Cash at 'ank 2(,$$$ -
b. Stock in 7and
8aw 6ateria! @,$$,$$$ -
,ork 9n /rogress
Material 1.04L*100*100%*2/52 4,00,000 -
Labour 1.04L*40*50%*2/52 80,000 -
O/H 1.04L*60or80*50%*2/52 1,20,000 1,60,000
;inished Stock 1.$&22$$ or 22$2&4(2 1*,$$,$$$ 1+,*$,$$$
c. :ebtors 1.$&?22$$ or 2&$ 2 @4(2 #2,$$,$$$ #@,&$,$$$
d. /re"aid 0-"enses
Total Current Assets (A) *2,2(,$$$ (+,*$,$$$
Current Liabilities
a. Creditors @,$$,$$$ -
b. ,ages o4s 1.$&?2&$21.(4(2 1,2$,$$$ 1,2$,$$$
c. 5verheads o4s
Total Current Liabilities (B) B,2$,$$$ 1,2$,$$$
Working Capital (A-B - (#,$(,$$$ (*,&$,$$$
,orking Ca"ita! 0sti%ation
1uestion ,,

1-Working Capital


CD (+,*$,$$$
C?D 1,2$,$$$
7ard Core CD 1+,2@,$$$
6ethod 1 &2,#$,$$$
6ethod 2 &2,$$,$$$
6ethod # 2B,$&,$$$

Current Assets Cash ""roach Tota! a""
a. Cash at 'ank Gnits-*$,$$$
b. Stock in 7and #$,$$$ S/- (
8aw 6ateria! *$k2#22412 6at- *$>- #
,ork 9n /rogress ?ab-1$>- $.(
Material 60k*3*100%*1/12 1(,$$$ 57- 2$>- 1
Labour 60k*0.5*50%*1/12 1,2($ /rofit $.(
Overheads 60k*1*50%*1/12 2,500
;inished Stock *+,($$
c. :ebtors +(,$$$
d. /re"aid 0-"enses
Total Current Assets (A) - 1,B1,2($
Current Liabilities
a. Creditors 1/urchase - credit "eriod. #$,$$$
b. ,ages o4s 1e-"ense - credit "eriod.
c. 5verheads o4s 1e-"ense - credit "eriod.
Total Current Liabilities (B) - #$,$$$
Working Capital (A-B - 1,*1,2($
6argin
1uestion ,'

1-Working Capital


To o" St 'y sa!es #,$$,$$$
86 #$,$$$ 'y Stock
,9/ 1@,+($ 86 #$,$$$
;S *+,($$ ,9/ 1@,+($
To /urchases 1,@$,$$$ ;S *+,($$
To ,ages #$,$$$
To 6anu 0-" *$,$$$
To </ '+(+++
0(-.(,*+ 0(-.(,*+
'y </ #$,$$$
T5 :eb 9nt 2,($$
To N/ ,)(*++
#$,$$$ #$,$$$
Trading A /? a4c
SC 2,$$,$$$ ; 1,2(,$$$
Stock
8eserve inc!uding /? '.(,*+ 86 #$,$$$
(> :eb ($,$$$ ,9/ 1@,+($
;S *+,($$
Ceediotrs #$,$$$ :ebtors +(,$$$
#,1*,2($ #,1*,2($
'4S

To o" stock-;S 1,*1,2($
To 6ateria! consu%ed *,+(,$$$ 'y sa!es 2+,$$,$$$
To ,ages (,&$,$$$ 'y C! Stock
To 6auf 0-" +,2$,$$$ ;inished 1,*1,2($
To :e" 2,2(,$$$
To </ (,&$,$$$
2@,*1,2($ 2@,*1,2($
To d% 1,@$,$$$ 'y </ (,&$,$$$
To sa!es B$,$$$
To N/ 2,+$,$$$
(,&$,$$$ (,&$,$$$
Trading A /? 4c

1-Working Capital


Question 2&
Cash
1,1*,2($
(*,2($
1,*1,2($
#,*+,($$
22,($$
+,2#,+($
1,12,($$
&(,$$$
*$,$$$
1(,$$$
2,#2,($$
&,B1,2($
+#,*@@
(,*&,B#@
8aw 6ateria!
,ork 9n /rogress
Material
;inished Stock 1*.+(?E(.&$E+.2$?.21412
c. :ebtors 1*.+(?E(.&$?E+.2$?E1.@$?E$.B$.22412
d. /re"aid 0-"enses
Current Liabilities
a. Creditors 1/urchase - credit "eriod.
b. ,ages o4s 1e-"ense - credit "eriod.
c. 5verheads o4s 1e-"ense - credit "eriod.-6anu
d% e-"
6argin
d3usted ,orking Ca"ita!
Current Assets
a. Cash at 'ank
b. Stock in 7and
Labour
Overheads

1-Working Capital


Current Assets Cash A$$ "otal app
a. Cash at 'ank 2,$$,$$$ 2,$$,$$$
b. Stock in 7and
8aw 6ateria! D1(?2&2#412 1(,$$,$$$ 1(,$$,$$$
,ork 9n /rogress
Material 1500000*4*100%*2/12 10,00,000 10,00,000
Labour 1500000*2*50%*2/12 2,50,000 2,50,000
Overheads 1500000*2*50%*2/12 2,50,000 2,50,000
;inished StockD 1(?2@2#412 #$,$$,$$$ #$,$$,$$$
c. :ebtors #$,$$,$$$ #+,($,$$$
Total Current Assets (A) B2,$$,$$$ BB,($,$$$
Current Liabilities
a. CreditorsD 1(?2&2&412 2$,$$,$$$ 2$,$$,$$$
b. ,ages o4s 1e-"ense - credit "eriod. 1,2(,$$$ 1,2(,$$$
c. 5verheads o4s 1e-"ense - credit "eriod. 1,2(,$$$ 1,2(,$$$
Total Current Liabilities (B) 22,($,$$$ 22,($,$$$
Working Capital (A-B .&(*+(+++ ))(++(+++
6argin-1$> 5; wc 0LC? CS7 1*B.($-2?.21$> and 1++?-2?.21$> *,+(,$$$ +,($,$$$
d3usted ,orking Ca"ita! +*,2(,$$$ @&,($,$$$
Question 2(

Current Assets Cash "otal
a Cash at Bank ,+(+++ ,+(+++
3 !tock in 8and
;aw 2aterial '+(+++ '+(+++
Work <n $rogress
Material 60000*3.00*100%*1/12 15,000 15,000
Labour 60000*0.50*50%*1/12 1,250 1,250
Overheads 60000*1.00*50%*1/12 2,500 2,500
Finished !tock .)(*++ .)(*++
c :e3tors .)(*++ )*(+++
Total Current Assets (A) ,(+'()*+ ,(--(,*+
Current Liabilities
a Creditors ($urchase 5 credit period '+(+++ '+(+++
3 Wages o/s (e5pense 5 credit period ,(*++ ,(*++
c 6=erheads o/s (e5pense 5 credit period *(+++ *(+++
Total Current Liabilities (B) ')(*++ ')(*++
Working Capital (A-B -(..(,*+ -()'()*+
Question 2*

1-Working Capital


Current Assets Cash
a. Cash at 'ank 1,$$,$$$
b. Stock in 7and
8aw 6ateria! B$$$$$21412 +(,$$$
,ork 9n /rogress
Material
Labour
Overheads
;inished Stock 2,1(,$$$
c. :ebtors 2B,&$,$$$ 2 2412 &,B$,$$$
d. /re"aid 0-"enses #$,$$$
Total Current Assets (A) B,1$,$$$
Current Liabilities
a. Creditors 1/urchase - credit "eriod. B$$$$$ 2 2412 1,($,$$$
b. ,ages o4s 1e-"ense - credit "eriod. *$,$$$
c. 5verheads o4s 1e-"ense - credit "eriod.-6anu @$,$$$
d% e-" 2$,$$$
Total Current Liabilities (B) #,1$,$$$
Working Capital (A-B *,$$,$$$
6argin 1,2$,$$$
d3usted ,orking Ca"ita! +,2$,$$$
1uestion,)

To o" stock
To 6ateria! B,$$,$$$ 'y sa!es #*,$$,$$$
To ,ages +,2$,$$$ 'y C! Stock
To 6auf 0-" B,*$,$$$ ;inished
To :e" 1,2$,$$$
To </ B,$$,$$$
#*,$$,$$$ #*,$$,$$$
To d% 2,&$,$$$ 'y </ B,$$,$$$
To sa!es 1,2$,$$$
To N/ (,&$,$$$
B,$$,$$$ B,$$,$$$
Trading A /? 4c

1-Working Capital


Current Assets Cash Tota!
a. Cash at 'ank 2.($ 2.($
b. Stock in 7and 1.@@ 1.@@
8aw 6ateria!
,ork 9n /rogress
Material
Labour
Overheads
;inished Stock 1$.+( 11.2(
c. :ebtors 2$.*# 22.($
d. /re"aid 0-"enses #.$$ #.$$
Total Current Assets (A) #@.+($$$ &1.1#
Current Liabilities
a. Creditors 1/urchase - credit "eriod. 2.@1 2.@1
b. ,ages o4s 1e-"ense - credit "eriod. 1.($ 1.($
c. 5verheads o4s 1e-"ense - credit "eriod. 2.($ 2.($
Total Current Liabilities (B) *.@1 *.@1
Working Capital (A-B #1.B#+($$ #&.#1
6argin 1.*$ 1.+2
d3usted ,orking Ca"ita! ##.(# #*.$#
1uestion ,/

To o" stock
To 6ateria! 22,($,$$$ 'y sa!es B$,$$,$$$
To ,ages 1@,$$,$$$ 'y C! Stock
To 6auf 0-" 2&,$$,$$$ ;inished
To :e" #,$$,$$$
To </ 22,($,$$$
B$,$$,$$$ B$,$$,$$$
To d%in *,$$,$$$ 'y </ 22,($,$$$
To Sa!es 12,$$,$$$
To N/ 0(*+(+++
22,($,$$$ 22,($,$$$
Trading A /? 4c

/roduction D ----------------------------------------------------------- D ($$,$$$ dru%s
1uestion ,&
2$$ kg
12(,$$$ - 1$$$kg 2 @$>

1-Working Capital


Current Assets Cash
a. Cash at 'ank 2(,$$,$$$
b. Stock in 7and
<y"su% (.$$? 22( 2 #412 #1,2(,$$$.$$
Coa! (.$$? 2 #$22.(412 #1,2(,$$$.$$
?i%estone (.$$?21(21412 *,2(,$$$.$$
/acking (.$$?21$21.(412 *,2(,$$$.$$
,ork 9n /rogress
Material 5L*(25+15+30)*100%*0.5/12 14,58,333.33
Labour 5L*50*50%*0.5/12 5,20,833.33
Overheads 5L*20*50%*0.5/12 2,08,333.33
;inished Stock (?212(E1(E#$E($E2$.21412 (@,##,###.##
c. :ebtors (?212(E1(E#$E1$E($E2$E2$E2(E2(.2#412 2+(,$$,$$$.$$
Total Current Assets (A) &((,2$,@##.##
Current Liabilities
a. Creditors 1/urchase - credit "eriod.
<y"su% (.$$?22(22412 2$,@#,###.##
Coa! (.$$?2#$21412 12,($,$$$.$$
/acking (.$$?21$2$.(412 2,$@,###.##
b. ,ages o4s (?2($2$.(412 1$,&1,***.*+
c. 5verheads o4s (?212$E2$E2(.21412 2+,$@,###.##
d. 54s Sa!es Ta- (.$$?22(21.(412 1(,*2,($$.$$
@@,(&,1**.*+
#**,**,***.*+
-
#**,**,***.*+
6argin
d3usted ,orking Ca"ita!

1-Working Capital


Question No. #$
Current Assets Working Cash Tota!
a. Cash at 'ank @,$$$ @,$$$
b. Stock in 7and
8aw 6ateria! 1@&$$$E12*$$.22412 1*,1$$ 1*,1$$
,ork 9n /rogress
Material 84000*15%*100% 12,600 12,600
Labour & Exp 62500*15%*40% 3,750 3,750
Dep 23500*15%*40% - 1,410
;inished Stock 1@&$$$E*2($$.21$> or 1.+$?21$> 1&,*($ 1+,$$$
c. :ebtors 1@&$$$E*2($$.2B$>E2+$$$.2@$>22412 21,1@$ 2@,$$$
d. /re"aid 6anu 0-" 1*2($$E#+($.21412 (,(21 (,(21
e. /re"aid d% A Se!!ing 2+$$$21412 2,2($ 2,2($
Total Current Assets (A) /0(+*- &0(.'-
Current Liabilities
a. Creditors 1@&$$$E12*$$E1*1$$.21.(412 1&,$@@ 1&,$@@
b. ,ages o4s - -
c. 9nco%e Ta- 1$$$$2#$> - #,$$$
Total Current Liabilities (B) -0(+// -)(+//
Working Capital (A-B .&(&.' ))(*0'

1-Working Capital


$articulars units Amount units Amount
8aw 6ateria!
5" stock - &(,$$$
/urchase 2,@(,$$$ #,@2,($$
1-. C! St 1&(,$$$. 1*+,($$.
2aterial Consumed ,(0+(+++ '(.+(+++
:irect ,ages 1,2$,$$$ 1,@$,$$$
$;<24 C6!" *,$$$ #,*$,$$$ (,&$,$$$
;actory 54h
;i-ed +2,$$$ +2,$$$
:e" 1,2$,$$$ 1,2$,$$$
>FC/9FC/Cost of $roduction *,$$$ (,(2,$$$ B,$$$ +,#2,$$$
E of ;in st - - 1,$$$ B2,$$$
1-. c! fins st (-(+++ 1B2,$$$. (-(*++ 11,22,$$$.
C6>! (,$$$ &,*$,$$$ @,($$ +,$2,$$$
d% 54h-;i-ed &@,$$$ &@,$$$
SA:-Karraib!e 2$,$$$ #&,$$$
SA:-;i-ed 12,$$$ 12,$$$
"C (,&$,$$$ +,B*,$$$
/rofit (.+(+++ ,+(+++
First ?ear !econd ?ear
1uestion 9o. '-

Current Assets First ?ear !econd ?ear
a. Cash at 'ank 1$,$$$
b. Stock in 7and
8aw 6ateria! *+,($$
,ork 9n /rogress -
Material
Labour
Overheads
;inished Stock 1,22,$$$
c. :ebtors *@,$$$
d. /re"aid 0-"enses -
Total Current Assets (A) ,(.)(*++
Current Liabilities
a. Creditors 1/urchase - credit "eriod. #1,@+(
b. ,ages o4s 1e-"ense - credit "eriod. 1(,$$$
c. 5verheads o4s 1e-"ense - credit "eriod. 1#,@##
Total Current Liabilities (B) .+()+/
Working Capital (A-B ,(+.()&,

1-Working Capital


Sa!es &,#2,$$$
--------------------------------- D --------------- D 2&$$$ D Gnits So!d
S/ 1@
1uestion 9o. ',
$articulars $@ "otal(,0(+++ $@ "otal(0/k
6ateria! *.$$ 1,&&,$$$ (.&$ 2,(B,2$$
,ages
Kariab!e #.$$ +2,$$$ #.$$ 1,&&,$$$
;i-ed 2.$$ &@,$$$ 1.$$ &@,$$$
/8960 C5ST 11.$$ 2,*&,$$$ B.&$ &,(1,2$$
54h
Kairab!e 1.$$ 2&,$$$ 1.$$ &@,$$$
;i-ed &.$$ B*,$$$ 2.$$ B*,$$$
TC 1*.$$ #,@&,$$$ 12.&$ (,B(,2$$
/rofit 2.$$ &@,$$$ (.*$ 2,*@,@$$
S/ 1@.$$ &,#2,$$$ 1@.$$ @,*&,$$$

?ear - ?ear ,
8 B&.+& +(.B&
, #1.#$ #(.&1
; (&.$$ &@.$$
: +2.$$ B$.$$
1-. C 1*$.$$. 1&@.$$.
1B2.$& 2$1.#(
o" stock - 2$.$$
E /urchases B*.$$ 1#(.$$
- c!sosing stock 12$.$$. 12+.$$.
;2 consumed )..++ -,/.++
o" ;inished St - 21.$$
E Cost of "rod -.-.++ -/'.++
- C! ;in st 121.$$. 12&.$$.
Cost of >oods sold 1&$.$$ 1@$.$$
5"erating Cyc!e
1uestion no. ''
6ld 9ew
86 Stock #*,$$$
,9/ 22,$$$
; < Stock +2,$$$
:rs 1,$@,$$$
7o!ding /eriods
8 D 86 Stock486 Cons 212 #.$$ #.$$
, D ,9/ St4/C 212 1.$$ $.($
; D ;S4C5/ 212 2.2( 2.2(
: D:rs4Sa!es 212 #.$$ #.$$
Creditors Dgiven 2.$$ 2.$$
,ages D given $.($ $.($
0-" D given $.($ $.($

1-Working Capital


-(&&. -(&&* -(&&0
5" stock-86 @(.$$ @$ +@
C! Stock-86 @@.$$ @( @$
/urchase-86 #2$.$$ #$$ 2($
Consu%ed-86 #1+.$$ 2B(.$$ 2&@.$$
v stock-86 @*.($ @2.($ +B.$$
; B@.2# 1$$.*@ 11&.*@
1uestion 9o. '*

5" Stock-,9/ 2& 2$
C! Stock-,9/ 2( 2&
Cons 86 #1+ 2B(
6anu 0-" 1*$ 1&(
:e" 2( 2$
0-cise -
Cost of /rod ($1 &(*
v stock-,9/ 2&.($ 22
W 1+.*$ 1+

5/ St-;S 1$$
C! St-;S B@
Cost of /rod ($1
0-cise-ssu%ed to be inc! in ;S *(
Cost of <oods So!d (*@
v Stock BB
F *2.+(

5" :rs 1($
C! :rs 1(2
Sa!es @2(
v :rs 1(1
: *(.@B

1-Working Capital


Current ssets 1,$$$
:efferred 8eceivab!e due after 1 year 1&$.
B*$
Current ?iabi!ities 2$$
?oan insta!!%ent "ayab!e in a year 1$$
;: re"ayab!e in a year 1$$
K8S "ayab!e after 1 year 1&$.
#*$
Core Current ssets 2(> of C 2&$
6ehod 1- +(>21C-C?. &($
6ethod 2- +(>2C - C? #*$
6ethod #- +(>21C-CC. - C? 1@$
C8 Gsed ;or C Gsed for ;
6ehod 1- +(>21C-C?. 1B*$E&($.41#*$E&($. or B*$41#*$E&($. 1.+& 1.1B
6ethod 2- +(>2C - C? 1.@# 1.##
6ethod #- +(>21C-CC. - C? 2.11 1.+@
1uestion 9o. '.

Current ssets
St-86 1$$.$$
St-,9/ 1($.$$
St-;< +(.$$
:rs 1$$.$$
Cash ((.$$
Tota! &@$.$$
Current ?iabi!ity
Trade Creditors @$.$$
'i!!s /ayab!e 1$$.$$
Tota! 1@$.$$
7ard Core C #$.$$
6ehod 1- +(>21C-C?. 22(.$$
6ethod 2- +(>2C - C? 1@$.$$
6ethod #- +(>21C-CC. - C? 1(+.($
1CE6/';.41C?E6/';. C41C?E6/';.
6ehod 1- +(>21C-C?. 1.+& 1.1B
6ethod 2- +(>2C - C? 1.@# 1.##
6ethod #- +(>21C-CC. - C? 1.@B 1.&2
1uestion 9o. ')

1 Working Capital

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