96705061 15-marks-case-study

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15 MARKS CASE STUDY FOR FINAL EXAM

Liabilities 2000-01 2001-02 Assets 2000-01 2001-02Capital 36.00 39.00 Fixed

Assets 45.00 69.00

Gen. Reserves 41.00 42.00 Investment In subsidiaries

22.00 21.00

Other free Reserves 22.00 24.00 Deposits with Govt

21.00 22.00

Debentures 22.00 22.00 Bills receivable 66.00 70.00Term loans 25.00 24.00 Bank Deposits 25.00 24.00Other TL 28.00 30.00 Raw Material 36.00 40.00Bank OD 40.00 60.00 Finished Goods 33.00 38.00Sundry Creditors 39.00 46.00 Cash & BB 28.00 30.00 Other short term loans 22.00 23.00 Quoted

investments25.00 21.00

Other Current liabilities

26.00 25.00

TOTAL 301.00 335.00 301.00 335.00



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Additional information Rs. lacs

Particulars 2001 2002 2003Gross Sales 250.00 400.00 450.00Credit Sales 100% 100% 100%Purchases 150.00 260.00 320.00Raw material consumed 110.00 210.00 260.00Cost of Production 160.00 290.00 350.00Cost of Sales 175.00 310.00 360.00Financial Expenses 10.00 15.00 20.00

Calculate working capital under NAYAK committee and TANDON – II method for 2001, 2002 and 2003

PROFORMA ANSWERS FOR CASE STUDIES

Working capital II method ( Inventory Method / Tandon Method)

Current Assets ;

Cash

Bank Balance

Deposits in Banks

Xxx

Xxxx

Xxx

Xxx

Misc Current Assets

Inventory

Raw material

Work in Process

Finished Goods

Stores and Spares

Debtors

Sundry Debtors

Book Debts

Bills Receivables

(A) TOTAL CURRENTS XXXXX CA

Less Current Liabilities other than Bank Borrowings

Note :While considering Current liabilities Other than Bank Borrowings NO Bank OD / CC should be included .It is purely other Current Liabilities.

If Bank Borrowings also included then it will be total current liabilities and the answer will be NWC and not Working capital GAP Sundry Creditors

Bills Payable

Provisions

Xxxx

Xxxx

Xxxx

(B) TOTAL CURRENT LIABILITES XXXXX CL

(C) A- B WORKING CAPITAL GAP WCG

(D) Minimum Required NWC i.e 25% of (A) i.e CA

* (E) Actual / projected NWC i.e From the previous year Balance sheet / current year TOTAL CURRENT ASSETS less TOTAL CURRENT LIABILITES

(F) C – D or C –E which ever is less is the MPBF

* Note :Suppose you are calculating working capital for the year 2008 , then balance sheet of 2007 should also be used and NWC should be worked out from the year 2007. The logic is it is expected that the customer will maintain at least previous years (2007) NWC.

* It is possible that the customer might have projected in the current year (2008) more than the previous year (2007) and also more than 25% of current year (2008) requirement. In that case the current year (2008) NWC should be taken as(E) .

Example :

2006 2007 2008

Total Current Assets 50 60 80

Current Liabilities Other than BB 20 25 30

WCG 30 35 50

25% of CA 12.5 15 20

Now imagine that the actual NWC as on 2007 is 25 then for the year 2008 you should take 25 as Actual NWC

But there is a possibility that the customer might have projected 30 as NWC for the year 2008. i.e he is willing to give more than previous year i.e 2007 Since the customer is willing to provide more than what is minimum required we should consider only the projected NWC of 30 as the customer is willing to give

Which means while insisting the customer to provide Margin (NWC) we will verify whether to consider

1. Minimum as per rules2. Previous year Actual NWC3. Current year proposed NWC

Of three above which ever is higher. It means we insist the customer to give more margin (NWC) money

NOTE :

To build

Raw Material – Raw material consumed is the basis

Work –in- Process – Cost of Production

Finished Goods – Cost of Sales

Debtors – Gross Sales

Other Current Assets – Financial Expenses

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96705061 15-marks-case-study