Skip to content

CS Professional · Strategic Management and Corporate Finance · Raising of Funds - Non Fund Based

Sundaram Textiles Ltd buys a machine for Rs 2 crore on deferred payment, backed by a bank DPG of Rs 2 crore. The bank charges a guarantee commission of 1.5% per annum on the outstanding guaranteed amount. The price is repaid in 4 equal annual instalments at the end of each year. Assuming the commission is calculated on the opening outstanding amount each year, the total commission over four years is:

The total commission is Rs 7.50 lakh. Opening guaranteed balances over the four years are 200, 150, 100 and 50 lakh, summing to 500 lakh, and 1.5% of this is 7.5 lakh. Charging on the full Rs 2 crore each year would wrongly give Rs 12 lakh.

  1. ARs 7.50 lakhCorrect
  2. BRs 12.00 lakh
  3. CRs 3.00 lakh
  4. DRs 7.50 crore

Explanation

Instalment is Rs 50 lakh. Opening balances: 200, 150, 100, 50 lakh, total 500 lakh. Commission = 1.5% x 500 = Rs 7.5 lakh. Rs 12 lakh wrongly charges on the full Rs 2 crore for all four years (1.5% x 800).

Did you get it right without looking?

One question tells you little. A timed set on Raising of Funds - Non Fund Based shows your real accuracy, how long you take and where you lose marks.

Practise Raising of Funds - Non Fund BasedFree diagnostic mock

More Raising of Funds - Non Fund Based questions