financial managemet

8/3/2019 Financial Managemet

1/12

SUBMITTED BY:-NARENDRA KUMAR

AMIT KUMAR

AGBS NOIDA

FINANCIAL MANAGEMENT

WORKING CAPITAL PROBLEMS

1


2/12

PROBLEM:-1 A firm has applied for working capital finance from acommercial bank, you are requested by the bank to prepare an estimate of the

working capital requirement of the firm. you may add 10% to your estimated

figure to account for exigencies.The following is the firms projected profit andloss account:

PARTICULARS RS.

1. SALES 2,247,000

2. COST OF GOOD SOLD 1,637,100

3. GROSS PROFIT (1-2) 609,900

4. ADMINISTRATIVE EXPENSES 1,49,800

5.SELLING EXPENSES 1,39,100

6. PROFIT BEFORE TAX [3-(4+5)] 3,21,0007. TAX PROVISION 107,000

8. PROFIT AFTER TAX [6-7] 214,000

The cost of good sold (cogs) is calculated as follows:-2


3/12

PARTICULARS RS.

MATERIALS USED 898,800

WAGES AND OTHER MANUFACTURING EXPENSES 668,750

DEPRICIATION 251,450

1,819,000

LESS: STOCK OF FINISHED GOODS

(10% PRODUCT NOT YET SOLD) 181,900

COST OF GOOD 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

percent of the year production are in progress on an average

requiring full material but only 40% of other expenses.3


4/12

The firm has a policy of keeping two months

consumption of material in stock.All expenses are paid one

month in arrear, supplies of material grant

one and a half months credit; sales are 20percent cash while remaining sold on two

months credit. 70 percent of the income tax

has to be paid in advance in quarterlyinstallment.

4


5/12

Sol:- Estimation of working capital

A.) INVESTMENT IN INVENTORIES

1. RAW MATERIAL: 2 MONTHS

(RMC/12)X2=(8,98,000/12)X2 149,800

2. W.I.P : 15% of cop (adjusted)=COP X 15% =(898,800+40% OF 668,750)

X15% = 11,66,300 X 15% 1,74,945

3. FINISHED GOODS : GIVEN

1,81,900 NON CASH DEPRICIATION=181,900 10% OF 251,450 156,755

B.) INVESTMENT IN DEBTORS: 2 MONTHS

PARTICULARS RS.

5


6/12

PARTICULARS RS.

{credit sales(cost)/12} x 12

=(80% cost of sales/12) x 2=80% (1,637,100-251,450+149,800

+139,100) 2/12 223,273

c.) cash balance 0.00

d.) investment in current assests 704,773.33

e.) current liabilities: deffered payments

1. creditors: 1x1/2 months(purchases/12)x

1x1/2=(898,800/24)x3 112,3502. deffered wages and other manufacturing

Selling and admn. Expenses: 1 month

6


7/12

PARTICULARS RS.

(668,750+149,800+139,100/12) x 1 79,804.17

f.) Total current liabilities 192,154.17g.) Net working capital (D-F) 512,619.16

NOTES:-

1. Depriciation is a non-cash item. Therefore it has

been ignored in calculations.

2. cost of production does not include selling and

administrative expenses.

3. profit has been ignored in calculating net workingcapital.since taxes can be paid out of profits. They have also

been ignored. Alternatively, advance payment taxes require

additional working capital and profits.7


8/12

PROBLEM 2:- A Performa cost sheet of a company providesthe following data:-

PARTICULARS RS.

COST(PER UNIT)

RAW MATERIAL 52.4

DIRECT LABOUR 19.4OVERHEADS 39.0

TOTAL COST(PER UNIT) 110.5

PROFIT 19.5

SELLING PRICE 130.0

8


9/12

The following is the additional information available:-

avg. raw material in stock;one month;avg. material inprocess;half a month;credit allowed by suppliers;one

month;credit allowed to debtors;two months.time log in

payment of wages;one and a half weeks;overheads;one

month of sales are on cash bases.

Cash balance is expected to be rs. 1,20,000

you are required to prepare a statement

showing the working capital needed to finance a level of

activity of 70,000 units of output.you may assume that

production is carried on efficiently throughout the yearand wages and overheads accrue similarly.

9


10/12

PARTICULARS RS.

A.) Investment in inventory

1.raw material inventory(1 months)(rmc/360)x Rmpl={(70,000x52)/360}x30 303,333.33

2. Work in progress inventory (15 days)

(cop/360)x wlpcp={(70,000x110.5)/360}x15 322,291.67

3.Finished goods inventory (1 month)

(cos/360)xfcp={(70,000x110.5)x36}x30 644,583.33

1270208.33

B.)Investment in debtors : (60 days){credit sale(cost)/360}Xbp

={(52,000x110.5)/360}x60 966,875.00

c) Cash balance10


11/12

PARTICULARS RS.

D.) INVESTMENT IN CURRENT ASSETS(a+b+c) 2357,708.3

E.) current liabilities:defferd payment

1.creditors:one month(30 days)

(purchase of raw material/360)x pdp

={(70,000x52)360}x30 303,333.33

2. Deffered wages:11/2 weeks(10 days)

={(70,000x19.5)/360}x10 37,916.673.Deffered overheads (1 months)

={(70,000x39)/360}x30 227,750.00

F.) Total deffered payment

{e(1+2+3)} 568,750.00

G.) Net working capital

(D-F) 1,788,958.33

11


12/12

12

financial managemet

Documents