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150 Corporate Finance BRILLIANT’S

Inventory norms: / BÝdoÝQ´>r ‘mnX§S>
Raw Materials / am° ‘Q>o[a¶ëg 2 months

Work-in-progress / dH©$-BZ-àmoJ«og 15 days
Finished Goods / {’${ZíS> JwS²>g 1 month
The company enjoys a credit of 15 days on its purchases and allows one-month credit to its
debtors. On sales orders the company has received an advance of ` 15,000.
H§$nZr H$mo BgH$s IarX na 15 {XZm| H$m H«o${S>Q> {_bVm h¡ VWm BgHo$ S>oãQ>g© H$mo 1 _mh Ho$ H«o${S>Q> H$s AZw_{V XoVm
h¡& goëg Am°S>©g© na H§$nZr H$mo ` 15,000 A{J«_ àmßV hþAm h¡&
You may assume that production is carried out evenly throughout the year and minimum
cash balance desired to be maintained is ` 10,000.
Amn _mZ gH$Vo h¢ {H$ CËnmXZ nyao df© g_mZ ê$n go g§nÝZ {H$`m J`m h¡ VWm Ý`yZV_ Amdí`H$ H¡$e ~¡b|g
` 10,000 ~Zm`o aIZm h¡&
Solution:
(i) Statement Showing Working Capital Requirements

Particulars (`)
(A) Current Assets
(i) Cash Balance 10,000
(ii) Stock of Raw Materials (2 months) (` 7,20,000 × 2/12) 1,20,000
(iii) Stock of Work-in-progress (15 days) (` 10,80,000 × 0.5/12) 45,000
(iv) Stock of Finished Goods (1 month) (` 10,80,000 × 1/12) 90,000
(v) Debtors (1 month) (` 10,80,000 × 1/12) 90,000
(vi) Monthly Expenditure 25,000
Total of Current Assets (A) 3,80,000
(B) Current Liabilities
(i) Creditors (15 days) (` 7,05,000 × 0.5/12) 29,375
(ii) Advance received from Debtors 15,000
Total of Current Liabilities (B) 44,375
Net Working Capital Required (A) – (B) 3,35,625

(ii) Working capital limits likely to be approved by bankers.
Particulars Required by Co. (`) Margin (`) Allowed by bankers (`)

A. Raw Materials 1,20,000 20% = 24,000 96,000
B. Work-in-Progress 45,000 30% = 13,500 31,500
C. Finished Goods 90,000 25% = 22,500 67,500
D. Debtors 90,000 10% = 9,000 81,000