Compute the requirement of Working Capital of a company from the following information provided: Sales for current year ₹ 25,00,000 There will be increase in sales by 40% in the next year Gross Profit 20% on sale Credito

CS Professional · Financial, Treasury and Forex Management · PYQS · December 2017
Compute the requirement of Working Capital of a company from the following information provided: Sales for current year ₹ 25,00,000 There will be increase in sales by 40% in the next year Gross Profit 20% on sale Creditor purchase 1/4th of Cost of Goods Sold Average collection period = 60 days Average payment period = 60 days Inventory Holding Period = 90 days (On the basis of Cost of Goods Sold) Cash and Bank Balance 2% of Sales (for calculation 1 year to be taken 12 × 30 = 360 days).

Answer & Explanation:

Working Notes: Cost of goods sold ₹ Sales 25,00,000 Expected increase 10,00,000 Sales for next year 35,00,000 Less: Gross profit @ 20% of sales (7,00,000) Cost of goods sold (COGS) 28,00,000 Credit purchase = 1/4th of ₹ 28,00,000 = ₹ 7,00,000 Computation of Working capital CURRENT ASSETS ₹ Debtors = sales * 60/360 = 35,00,000 * 60/360 5,83,333 Inventory = COGS * 90/360 = 28,00,000 * 90/360 7,00,000 Cash at bank = 2% of 35,00,000 70,000 Total current assets (A) 13,53,333 CURRENT LIABILITIES Creditors = credit purchase* 60/360 = 7,00,000 *60/360 1,16,667 Total current liabilities (B) 1,16,667 WORKING CAPITAL (A) - (B) 12,36,666

Topics: Working Capital Management

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