Casino Ltd. is a newly incorporated manufacturing company in Gujarat desiring to procure raw materials (RM) from within the country and some machine tools from Japan. They have entered into an agreement with a leading pu

CS Professional · Strategic Management and Corporate Finance · PYQS · June 2025
Casino Ltd. is a newly incorporated manufacturing company in Gujarat desiring to procure raw materials (RM) from within the country and some machine tools from Japan. They have entered into an agreement with a leading public sector bank for letter of credit for the said purpose. Up to 80% of the purchases will be under LC of which 30% shall be used for imports and balance for inland purchases. On the basis of the information provided, calculate the limit of LC for the financial year 2025-26: Sl. No. Particulars Amount ₹ 1 RM to be procured during the year 400 crore 2 Lead time for purchases within India 1 month Lead time for imports 2 months 3 Goods will be in transit for domestic purchases 1 month for imports 2 months 4 Credit available from Indian suppliers 1 month Japanese suppliers 3 months

Answer & Explanation:

Calculation of ILC & FLC limits of Casino Ltd for FY 2025-26 Raw material required for FY 2025-2026 is ₹400 crore, of which 80% is procured through LC i.e. ₹320 crore. Particulars ILC(Amount in crore) FLC (Amount in crore) LC used for 70% of 320 i.e. ₹224 30% of 320 i.e. ₹96 Monthly consumption 224 ÷ 12 = 18.667 96 ÷ 12 = 8 Lead time 1 month 2 months Transit time 1 month 2 months Credit period available 1 month 3 months Total period 3 months 7 months LC limit required 3 × 18.667 = 56 7 × 8 = 56 Total LC limit required for the year = 56 + 56 = ₹112 crore.

Topics: Corporate Finance

Open in Interactive Practice Hub · Full Practice Hub · Chapter Weightage · More in this subject

Related Questions in this Topic