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CS Executive · Corporate Accounting and Financial Management · Forecasting Financial Statements

Sunrise Textiles Ltd forecasts that sales will rise from ₹40 crore to ₹50 crore next year. Using the percentage of sales method, its fixed-assets and current-assets together are 60% of sales and its spontaneous liabilities are 20% of sales. Ignoring retained earnings, what is the additional external funding needed for the sales growth?

Additional external funding is ₹4 crore. Sales grow by ₹10 crore, so assets rise by 60% of that, ₹6 crore, while spontaneous liabilities supply 20%, ₹2 crore. The net requirement is ₹6 crore minus ₹2 crore, ignoring retained earnings.

  1. A₹2 crore
  2. B₹4 croreCorrect
  3. C₹6 crore
  4. D₹10 crore

Explanation

Increase in sales = ₹10 crore. Increase in assets = 60% × 10 = ₹6 crore. Increase in spontaneous liabilities = 20% × 10 = ₹2 crore. Funding needed = 6 − 2 = ₹4 crore. Option ₹6 crore ignores the spontaneous liabilities.

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