Following is the extract from the Balance Sheet of M/s YBL Ltd. as on 31 March, 2022 : Current Liabilities Amount (₹ in lakh) Current Assets Amount (₹ in lakh) (1) Bank Borrowings 820 (1) Inventories 650 (2) Trade Payabl

Calculation of Maximum Permissible Bank Finance and decision making To maintain the minimum current ratio of 1.33, Second method of lending as suggested by Tondon Committee would be used wherein maximum financing by bank can be up to 75% of current assets. So as per the suggested methodology, Maximum Permissible Bank Finance (MPBF) as per Tondon Committee would be: MPBF = 75% (Current Assets) - Current Liabilities (excluding Bank Borrowings) Or MPBF = [Current Assets - Current Liabilities (excluding Bank Borrowings)] - 25% of Current Assets MPBF would be Current Assets = 650 + 250 + 75 + 125 + 150 + 350 = ₹ 1,600 Lakhs Current Liabilities (excluding Bank Borrowings) = 200 + 180 = ₹ 380 Lakhs MPBF = 75% (₹ 1,600 Lakhs) - ₹ 380 Lakhs MPBF = ₹ 1,200 Lakhs - ₹ 380 Lakhs MPBF = ₹ 820 Lakhs Since YBL Ltd. has already availed Maximum Permissible Bank Finance and hence have reached the minimum current ratio of 1.33:1 via borrowings of ₹ 820 Lakhs, the Bank Manager should not sanction the loan request of YBL Ltd.