You are required to compute Maximum Permissible Bank Borrowings (MPBB) under three methods of Tandon Committee Norms pertaining to M L Ltd. from the following data and how you will present it to the Board : Existing Curr

CS Professional · Corporate Funding & Listings in Stock Exchanges · PYQS · June 2019
You are required to compute Maximum Permissible Bank Borrowings (MPBB) under three methods of Tandon Committee Norms pertaining to M L Ltd. from the following data and how you will present it to the Board : Existing Current Assets Raw materials: ₹8,00,000 Work in progress: ₹80,000 Finished goods: ₹3,60,000 Receivables: ₹2,00,000 Other current assets: ₹40,000 Existing Current Liabilities Creditors for purchases: ₹4,00,000 Other current liabilities: ₹2,00,000 Bank borrowings: ₹8,00,000 Core current assets are ₹3,80,000.

Answer & Explanation:

Maximum Bank Borrowings: (Tandon Committee norms) Method - I Method - II Method - III 0.75 (CA-CL) = 0.75 (CA)-CL = 0.75 (CA-CAA)- CL = 0.75(14,80,000-6,00,000) = 0.75(14,80,000) = 0.75(14,80,000- = 0.75(8,80,000) = - 6,00,000 3,80,000)-6,00,000 6,60,000 = 5,10,000 = 0.75 (11,00,000)- 6,00,000 2,25,000 = Review: Method - I Method - II Method - III Maximum Bank Borrowings 6,60,000 5,10,000 2,25,000 Actual Bank Borrowings 8,00,000 8,00,000 8,00,000 Excess Bank Borrowings 1,40,000 2,90,000 5,75,000 Under all the 3 methods, the excess bank borrowings can be converted in to long term debt.

Topics: Working Capital Management

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