Skip to content

CA Intermediate · Financial Management and Strategic Management · Financing of Working Capital

The projected figures of Sundaram Engineering for the next year are: total current assets ₹600 lakh; current liabilities other than bank borrowings ₹200 lakh. Using the Tandon Committee's second method of lending, what is the Maximum Permissible Bank Finance (MPBF)?

MPBF is ₹250 lakh. The second Tandon method requires the borrower to fund 25% of current assets from long-term sources, so MPBF equals 75% of current assets (₹450 lakh) minus other current liabilities (₹200 lakh). The first method would have given ₹300 lakh.

  1. A₹150 lakh
  2. B₹250 lakhCorrect
  3. C₹300 lakh
  4. D₹400 lakh

Explanation

Under the second method, MPBF = 0.75 × Current assets − Current liabilities (other than bank borrowings) = 0.75 × 600 − 200 = 450 − 200 = ₹250 lakh. ₹300 lakh is the first method: 75% of the working capital gap of ₹400 lakh. ₹400 lakh is the gap itself. ₹150 lakh wrongly uses 25% of current assets.

Did you get it right without looking?

One question tells you little. A timed set on Financing of Working Capital shows your real accuracy, how long you take and where you lose marks.

Practise Financing of Working CapitalFree diagnostic mock

More Financing of Working Capital questions