ABC Ltd has an outstanding bank guarantee of ₹ 425 lakh as per the Audited Balance Sheet of March 31, 2023. During the year 2023-24, the Company availed an additional bank guarantee of ₹ 150 lakh. The Company needs an ad

CS Professional · Strategic Management and Corporate Finance · PYQS · December 2024
ABC Ltd has an outstanding bank guarantee of ₹ 425 lakh as per the Audited Balance Sheet of March 31, 2023. During the year 2023-24, the Company availed an additional bank guarantee of ₹ 150 lakh. The Company needs an additional bank guarantee of ₹ 850 lakh in December 2023 to meet its one-time requirement. The bank guarantees maturing and cancelled by December 2023 are worth ₹ 300 lakh and ₹ 180 lakh respectively. The Bank guarantees cancelled during the year are worth ₹ 200 lakh. The Company has ₹ 950 lakh as its sanctioned Bank Guarantee Limit. Given these circumstances, you are required to assess whether the company should enhance its bank guarantee or if the existing bank guarantee will suffice to cover the additional requirement of ₹ 850 lakh.

Answer & Explanation:

Assessment of Limit of Bank Guarantee: - (in ₹ Lakh) Outstanding Bank Guarantee as per Audited Balance Sheet of March 31, 2023 (a) 425 Add: Bank Guarantee availed during the year 2023-24 (b) 150 Add: Additional Bank Guarantee required for December 2023 (c) 850 Total (a+b+c) 1425 Less: Bank Guarantee Matured by December 2023 300 Less: Bank Guarantee cancelled by December 2023 180 Requirement of Bank Guarantee by December 2023 945 Hence, in the given circumstances the requirement of Bank Guarantee by ABC Ltd. is ₹ 945 Lakh which is within the sanctioned Bank Guarantee ₹ 950 lakh. As a result, there is no necessity to increase the Bank Guarantee limit.

Topics: Corporate Finance

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