CA Intermediate · Financial Management and Strategic Management · Financing of Working Capital
Mehta Traders has current assets of ₹80,00,000 and current liabilities other than bank borrowings of ₹20,00,000. Using Tandon Committee Method 1 (borrower contributes 25% of the working capital gap), the maximum permissible bank finance is:
MPBF is ₹45,00,000. The working capital gap is ₹60,00,000 (current assets ₹80 lakh less other current liabilities ₹20 lakh); the borrower funds 25% of it, ₹15 lakh, and the bank finances the remaining 75%.
- A₹45,00,000Correct
- B₹40,00,000
- C₹60,00,000
- D₹15,00,000
Explanation
Working capital gap = 80,00,000 - 20,00,000 = 60,00,000. Borrower contributes 25% = 15,00,000. MPBF = 60,00,000 - 15,00,000 = 45,00,000. The ₹15,00,000 option is the borrower's margin, not the bank finance.
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