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Calculation Of Working capital

Requirement
Part-II
Percentage sales method
1. XYZ has achieved a turnover of Rs 85 crores for the accounting year 2007-
08.It is anticipated that the turnover of the company will reach Rs 110 crores
for the year 2008-09.the financial position of the company as on 31st march
2009 as follows
Liabilities Amount(crores) Assets Amount(crores)
Equity share capital 10 Land and building 4
Reserve and surplus 4 Plant & Machinery 5
Secured Loan 5 Inventories 11
Unsecured loan 3 Receivables 7
Sundry Creditors 6 Cash and bank 3
Provision for taxation 2

30 30

• Estimate the working capital requirement for the year 2008-2009


Percentage sales method
2. ABC has achieved a turnover of Rs 75 crores for the accounting year 2008-
09.It is anticipated that the turnover of the company will reach Rs 110 crores
for the year 200p-10.the financial position of the company as on 31st march
2009 as follows
Liabilities Amount(crores) Assets Amount(crores)
Equity share capital 8 Land and building 2
Reserve and surplus 4 Plant & Machinery 5
Secured Loan 5 Inventories 11
Unsecured loan 3 Receivables 8
Sundry Creditors 7 Cash and bank 4
Provision for taxation 3

30 30
• Estimate the working capital requirement for the year 2009-2010
3. The following are the extracts from the balance sheet of a company as on 31-3-2009.Compute the additional
working capital required by the company for the year ending 31-3-2010.
• Balance sheet (extracts only) as on 31-3-2009(Assets)

Fixed Assets (Rs.) (Rs.)


Land and Building 5,00,000
Plant and machinery 3,00,000 8,00,000
Current Assets
Stocks 8,00,000
Debtors 3,00,000
Cash and Bank 2,00,000
13,00,000
Less: Current Liabilities
Creditors 3,40,000
Taxation 80,000
Bank Overdraf 1,40,000
Bills payable 1,60,000
7,20,000
Working capital 5,80,000
13,80,000
Additional Information
• It is estimated that sale will increase by 25% next year
• Maximum amount of overdraft that can be availed will be only Rs
1,60,000
• There will be no increase in the liability, due to increase in exports
• Period of credit allowed to customers and stock turnover will
remain unaltered
• Period of credit allowed by creditors and that for bills payable will
remain the same
• There will be no increase in total amount of cash and bank
balances.
4. The following are the extracts from the balance sheet of a company as on 31-3-2009.Compute the additional
working capital required by the company for the year ending 31-3-2010.
• Balance sheet (extracts only) as on 31-3-2009(Assets)

Fixed Assets (Rs.) (Rs.)


Land and Building 5,00,000
Plant and machinery 3,00,000 8,00,000
Current Assets
Stocks 8,00,000
Debtors 4,00,000
Cash and Bank 3,00,000
15,00,000
Less: Current Liabilities
Creditors 4,40,000
Taxation 90,000
Bank Overdraf 1,30,000
Bills payable 1,80,000
8,40,000
Working capital 6,60,000
14,60,000
Additional Information
• It is estimated that sale will increase by 35% next year
• Maximum amount of overdraft that can be availed will be only Rs 1,80,000
• There will be no increase in the liability, due to increase in exports
• Period of credit allowed to customers and stock turnover will remain
unaltered
• Period of credit allowed by creditors and that for bills payable will remain
the same
• There will be no increase in total amount of cash and bank balances.
Operation cycle method
Formulae


• 1.Raw Material Stock =

• 2.Work in progress stock =

• 3.Finished goods stock =



4.Investment in debtors=

5.Sundry Creditors =

• 6.Creditors for wages and overheads


1. Prepare an estimate of net working capital requirement for the WCM Ltd adding 10% for contingencies from
the information given below.
• Estimated cost per unit of production Rs 170 including raw material Rs.80,direct labor Rs 30 and
overheads(exclusive of depreciation) Rs.60
• Selling price is Rs 200 per unit
• Level of activity per annum 1,04, 000 units
Raw material in stock 4 weeks

Work in progress(assume 50% completion stage) 2 weeks


Finished goods in stock 4 weeks
Credit allowed by suppliers 4 weeks
Credit allowed to debtors 8 weeks
Lag in payment of wages 1.5 weeks
Cash at bank is expected to be Rs 25,000

• You may assume that production is carried on evenly throughout the year (52 weeks) and wages and
overheads accrues similarly. All sales are on credit basis only. You may state your assumption, if any.
2. Prepare an estimate of net working capital requirement for the KLM Ltd adding 10% for contingencies from
the information given below.
• Estimated cost per unit of production Rs 180 including raw material Rs.90,direct labor Rs 40 and
overheads(exclusive of depreciation) Rs.50
• Selling price is Rs 250 per unit
• Level of activity per annum 1,06, 000 units
Raw material in stock 4 weeks
Work in progress(assume 50% completion stage) 2 weeks
Finished goods in stock 4 weeks
Credit allowed by suppliers 4 weeks
Credit allowed to debtors 8 weeks
Lag in payment of wages 1.5 weeks
Cash at bank is expected to be Rs 30,000
• You may assume that production is carried on evenly throughout the year (52 weeks) and wages and
overheads accrues similarly. All sales are on credit basis only. You may state your assumption, if any.
3.The board of directors of Ruby ltd. Request you to prepare a statement showing the working capital
requirements forecast for a level of activity of 1,56,0 00 units of production. The following information is
available for your calculation:
(Rs. Per unit)
Raw material 90

Direct Labor 40

Overheads 75

205

Profit 60

Selling price per unit 265


•Raw materials are in stock on average one month
•Materials are in process, on average 2 weeks
•Finished goods are in stock, on average one month
•Credit allowed by suppliers-one month
•Time lag in payments from debtors-2 months
•Lag in payments of wages-1.5 weeks
•Lag in payment of overheads-one month
•20% of the output is sold against cash. Cash in hand and at bank is expected to be Rs
60,000.It is to be assumed that production is carried on evenly throughout the year. Wages
and overheads accrue similarly and a time period of 4 weeks is equivalent to a month.
• 4. From the following details you are required to make an assessment of the average amount of working
capital requirement of Hindustan Ltd

Particulars Average period of Estimate for the 1st


credit year(Rs)
Purchase of raw material 6 weeks 20,00,000
Wages 1.5 weeks 19,50,000
Overheads
Rent, rates etc 6 months 1,00,000
Salaries 1 months 8,00,000
Other overheads 2 months 7,50,000
Sales cash 2,00,000
Credit sales 2 months 60,00,000
Average amount of stock 4,00,000
and work in progress
Average amount of 3,00,000
undrawn profit

• It is to be assumed that all expenses and income were made at even rate for the year.
5.The following information has been extracted from the records of a company: Product cost sheet( per unit)
 
Raw material 45
Direct labor 20
Overheads 40
Total 105
Profit
Selling Price 120

• Raw material are in stock on an average for 2 months


• The materials are in process on an average for 1 month
• The degree of completion is 50% in respect of all elements of costs
• Finished goods stock on an average is for 1 month
• Time lag in payment of wages and overheads is 1 month
• Time lag in receipt of proceeds from debtors is 2 months
• Credit allowed by suppliers is one month
• 20% of the output is sold against cash.
• The company is poised for a manufacture of 1, 44,000 units in the next year.You are required to prepare a statement
of working capital requirements of the company.
6.Calculate the amount of working capital requirement for SRCC Ltd from the following
information. (Per Unit)

Raw Material 160

Direct labor 60

Overheads 120

Total Costs 340

Profit 60

Selling Price 400

• Raw material are held in stock on an average for one month. Material are in process on
an average for half-a- month. Finished goods are in stock on an average for one month.
• Credit allowed by suppliers is one month and credit allowed to debtors is 2 months. Time
lag in payment of wages is 1.5 weeks. Time lag in payment of overheads expenses is one
month. One fourth of the sales are made on cash basis.
• Cash in hand and at bank is expected to be Nu.50, 000 and expected level of production
amounts to 1, 04,000 units for a year of 52 weeks.
• You may assume that production is carried on evenly throughout the year and a time
period of 4 weeks is equivalent to a month.
7.You are required to prepare a statement showing the working capital needed to finance a level of
annual activity of 52,000 units of output. The following information’s are available.

Elements of Costs Per unit

Raw materials 8
Direct labor 2
Overheads 6
Total Costs 16
Profit 4
Selling price 20

• Raw materials are in stock, on an average for 4 weeks. Material are in process, on an average for 2
weeks. Finished goods are in stock, on an average for 6 weeks. Credit allowed to customers is for 8
weeks. Credit allowed by suppliers of raw materials is for 4 weeks. Lag in payment of wages is 1.5
weeks. It is necessary to hold cash in hand and at bank amounting to 75,000.It may be noted that
production is carried on evenly during the year and wages and overheads accrue similarly.