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CS Executive · Corporate Accounting and Financial Management · Forecasting Financial Statements

Bharat Gears Ltd expects next year's sales of ₹12,00,000. Its trade receivables have been 15% of sales and inventory 20% of sales. Trade payables have been 10% of sales. What is the forecast net investment in these three working capital items (receivables + inventory − payables)?

Receivables of ₹1,80,000 plus inventory of ₹2,40,000 minus payables of ₹1,20,000 give a net investment of ₹3,00,000. Payables are a source of funds, so they are deducted from the assets.

  1. A₹3,00,000Correct
  2. B₹2,40,000
  3. C₹1,80,000
  4. D₹4,20,000

Explanation

Receivables = 15% × 12,00,000 = 1,80,000. Inventory = 20% × 12,00,000 = 2,40,000. Payables = 10% × 12,00,000 = 1,20,000. Net = 1,80,000 + 2,40,000 − 1,20,000 = 3,00,000. Option ₹4,20,000 wrongly adds payables instead of deducting them.

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