III. A firm has applied for working capital finance from a commercial bank. You are requested by the bank to prepare an estimate of the working capital requirements of the firm. The following is the firm's projected profit and loss account.
III. A firm has applied for working capital finance from a commercial bank. You are requested by the bank to prepare an estimate of the working capital requirements of the firm. The following is the firm's projected profit and loss account.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:I. A firm has applied for working capital finance from a commercial bank. You are requested by
the bank to prepare an estimate of the working capital requirements of the firm. The following
is the firm's projected profit and loss account.
In Rs
2,247,000
Sales
|Cost of goods sold
|Gross Profit
1.637,100
609,900
Administration expenses
149,800
Selling expenses
139,100
Profit before tax
321,000
Tax
107,000
Profit after tax
214,000
The cost of goods is calculated as follows.
|Material Used
Wages and other expenses
898,800
668,750
Depreciation
251,450
1,819,000
Less: Stock of finished goods (10%
181,900
product not yet sold)
Cost of goods Sold
1,637,100
The figures given above relate only to the goods that have been finished, and not to work in progress;
goods equal to 15 per cent of the year's production(in terms of physical units) are in progress on an
average requiring full material but only 40 percent of other expenses. The firm has a policy of keeping
two months consumption of material in stock.
All expenses are paid one month in arrears. Suppliers of material grant one and a half month credit;
Sales are 20 percent cash while remaining sold on two months credit.
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