CS Executive · Corporate Accounting and Financial Management · Working Capital Management
Sharma Textiles has permanent current assets of Rs 40 lakh and fluctuating current assets that peak at Rs 25 lakh. It follows an aggressive financing policy under which it funds all fluctuating current assets and Rs 10 lakh of permanent current assets with short-term funds. How much long-term funding does it use for current assets at the peak?
Long-term funding for current assets at peak is Rs 30 lakh. Total current assets are Rs 65 lakh (40 + 25). Short-term funds cover the Rs 25 lakh fluctuating portion plus Rs 10 lakh of permanent assets, Rs 35 lakh, leaving Rs 30 lakh financed long term.
- ARs 30 lakhCorrect
- BRs 40 lakh
- CRs 25 lakh
- DRs 35 lakh
Explanation
Short-term funds at peak = 25 + 10 = Rs 35 lakh. Total current assets at peak = 40 + 25 = Rs 65 lakh. Long-term funding = 65 - 35 = Rs 30 lakh. Rs 40 lakh would wrongly assume that all permanent assets are long-term financed, ignoring the Rs 10 lakh short-term portion.
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