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

Kaveri Foods Ltd has current sales of ₹20,00,000 and total assets of ₹10,00,000, all of which vary with sales. Spontaneous liabilities are ₹2,00,000 and also vary with sales. Net profit margin is 6% and the dividend payout ratio is 50%. Sales are expected to rise by 20%. Using the percentage-of-sales method, what is the external funds requirement?

The external funds requirement is the rise in assets of ₹2,00,000 less the rise in spontaneous liabilities of ₹40,000 and retained earnings of ₹72,000, giving ₹88,000.

  1. A₹1,28,000Correct
  2. B₹1,00,000
  3. C₹2,00,000
  4. D₹56,000

Explanation

Increase in sales = 4,00,000. Increase in assets = 50% × 4,00,000 = 2,00,000 (assets/sales = 0.5). Increase in spontaneous liabilities = 10% × 4,00,000 = 40,000. New sales = 24,00,000; net profit = 1,44,000; retained = 72,000. EFR = 2,00,000 − 40,000 − 72,000 = 88,000. Hence the correct figure is ₹88,000, which is not listed.

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