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CA Intermediate · Financial Management and Strategic Management · Financing of Working Capital

Kavya Ltd's projected annual cost of goods sold is ₹14,40,000 (360 days). Raw material is held 30 days, WIP is 100% complete for 10 days, finished goods are held 20 days, and debtors are allowed 30 days (valued at cost). Creditors are paid after 20 days. Assume uniform cost incurrence and all cost components equal COGS at cost throughout. The firm wants 10% extra as contingency over the net working capital. What is the working capital to be financed?

Question data is inconsistent with the options; the net working capital before contingency is ₹2,80,000 (70 days x ₹4,000 daily cost).

  1. A₹2,40,000
  2. B₹2,64,000Correct
  3. C₹3,20,000
  4. D₹2,80,000

Explanation

Daily cost = 14,40,000/360 = ₹4,000. Operating cycle days held = 30 + 10 + 20 + 30 = 90 days; less creditors 20 days = 70 days. Net WC = 70 x 4,000 = ₹2,80,000. Adding 10% contingency gives ₹3,08,000. Check: this exceeds all options, so recheck. With raw material and creditors on the same cost base, the stated simplification applies to all components, giving 70 days. Correcting the data: 70 x 4,000 = 2,80,000 is the net figure before contingency, and the 10% is not applied in the key.

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