CA Intermediate · Financial Management and Strategic Management · Financing of Working Capital
Sharma Traders has current assets of ₹40,00,000 and current liabilities other than bank borrowings of ₹10,00,000. Under Tandon Committee Method II, the borrower must provide 25% of current assets from long-term sources. What is the maximum permissible bank finance?
Maximum permissible bank finance under Method II is ₹20,00,000. It is 75% of current assets (₹30,00,000) minus current liabilities other than bank borrowings (₹10,00,000). The ₹22,50,000 figure results from wrongly applying Method I.
- A₹20,00,000Correct
- B₹22,50,000
- C₹30,00,000
- D₹7,50,000
Explanation
Method II: 75% of current assets = 0.75 × 40,00,000 = ₹30,00,000. Less current liabilities other than bank borrowings ₹10,00,000 gives ₹20,00,000. Using Method I (75% of gap = ₹22,50,000) would be the wrong method.
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