Skip to content

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

Under the Tandon Committee's norms for bank finance of working capital, which method requires the borrower to contribute at least 25% of total current assets from long-term sources, so that the current ratio is about 1.17:1?

The second method of lending is correct. Under it the borrower must finance at least 25% of total current assets from long-term sources, and the bank finances the remaining gap, which gives a current ratio of about 1.17:1. The first method asks for only 25% of the working capital gap.

  1. AFirst method of lending
  2. BSecond method of lendingCorrect
  3. CThird method of lending
  4. DTurnover method

Explanation

In the second method, maximum permissible bank finance = 75% of current assets minus current liabilities (other than bank borrowings). The borrower's net working capital is therefore at least 25% of current assets. The first method requires only 25% of working capital gap, and the third also excludes core 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