| Question: PQ Ltd. A company newly commencing a business in 2005 has the undermentioned Projected Profit and Loss Account: | ||||
| Rs. | Rs. | |||
| Sales | 2,10,000 | |||
| Cost of Goods Sold | 1,53,000 | |||
| Gross Profit | 57,000 | |||
| Administrative expenses | 14,000 | |||
| Selling expenses | 13,000 | 27,000 | ||
| Profit Before Tax | 30,000 | |||
| Provision For Tax | 10,000 | |||
| Profit After Tax | 20,000 | |||
| The Cost of Goods sold has been arrived as under: | ||||
| Material Used | 84,000 | |||
| Wages and Manufacturing expenses | 62,500 | |||
| Depreication | 23,500 | |||
| 1,70,000 | ||||
| Less: Stock of Finished Goods | ||||
| (10% of goods produced not yet sold) | 17,000 | |||
| 1,53,000 | ||||
| The figure given above relate only to finished goods and not to work-in-progress. Goods equal to | ||||
| 15% of the year's production (in terms of physical unit) will be in process on the average requiring | ||||
| full materials but only 40% other expenses. The company believes in keeping materials eqaul to | ||||
| 2 months' consumption in stock. | ||||
| All Expenses will be paid in advance. Suppliers of materials wil extend 1-1/2 month credit. Sales will | ||||
| be 20% for cash and the rest at 2 months' credit. 705 of the Income Tax will be paid in advance in | ||||
| quarterly insatlments. The Company wishes to keep Rs. 8,000 in cash. | ||||
| Prepare an estimate of (i). Working capital, and (ii). Cash Cost of Working Capital. | ||||
| AS PER MY SOLUTION | ||||
| Estimate of working Capital Requirement: | ||||
| (Amt in Rs.) | ||||
| Particulars | (i). Total Cost Basis | (ii). Cash Cost Basis | ||
| Current Assets: | ||||
| Raw Material (84,000 x 2/12) | 14000 | 14000 | ||
| Work-in-Progress: | ||||
| Raw Material (15% of 84,000) | 12600 | 12600 | ||
| Wages & Manufacturing Expenses [15% of (40% of 62,500)] | 3750 | 3750 | ||
| Depreciation [15% of (40% of 23,500)] | 1410 | 17760 | NIL | 16350 |
| Finished Stock: | ||||
| Raw Material (10% of 84,000) | 8400 | 8400 | ||
| Wages & Manufacturing Expenses (10% of 62,500) | 6250 | 6250 | ||
| Depreciation (10% of 23,500)] | 2350 | 17000 | NIL | 14650 |
| Debtors: | ||||
| *[(2,10,000*80%)*2/12] | * | 28000 | ||
| **(WN 1) | ** | 21180 | ||
| Cash | 8000 | 8000 | ||
| Prepaid expenses: | ||||
| Wages & Manufacturing expenses (62,500/12) | 5208 | 5208 | ||
| Administrative Expenses (14,000/12) | 1167 | 1167 | ||
| Selling Expenses (13,000/12) | 1083 | 7458 | 1083 | 7458 |
| Total Current Assets (A) | - | 92218 | - | 81638 |
| Current Liabilities: | ||||
| Sundry Creditors (84,000*1.5/12) | 10500 | 10500 | ||
| Provision For Taxation (30% of 10,000) | 3000 | 3000 | ||
| Total Current Liabilities (B) | - | 13500 | - | 13500 |
| Working Capital Required [A-B] | - | 78718 | - | 68138 |
| Working Notes: | ||||
| 1. Computation of Debtors as per Cash Cost Basis | Rs. | |||
| Cost of Goods Sold | 153000 | |||
| Less: Depreciation (90% of 23,500) | 21150 | |||
| 131850 | ||||
| Add: Administrative Expenses | 14000 | |||
| Selling Expenses | 13000 | |||
| Total Cash Cost of Sales | 158850 | |||
| Less: Cash Cost of Cash Sales 20% of above | 31770 | |||
| Cash Cost of Credit Sales | 127080 | |||
| Debtors at 2 months Credit | 21180 | |||
| AS PER ICAI STUDY MATERIAL | ||||
| (i). Estimate of working Capital Requirement: | ||||
| Particulars | Total Cost Basis | |||
| Current Assets: | ||||
| Finished Stock: | ||||
| Raw Material (10% of 84,000) | 8400 | |||
| Wages & Manufacturing Expenses (10% of 62,500) | 6250 | |||
| Depreciation (10% of 23,500)] | 2350 | 17000 | ||
| Work-in-Progress: | ||||
| Raw Material (15% of 84,000) | 12600 | |||
| Wages & Manufacturing Expenses [15% of (40% of 62,500)] | 3750 | |||
| Depreciation [15% of (40% of 23,500)] | 1410 | 17760 | ||
| Raw Material [(84,000 + 12600) x 2/12] | 16100 | |||
| Debtors [(2,10,000*80%)*2/12] | 28000 | |||
| Cash | 8000 | |||
| Prepaid expenses: | ||||
| Wages & Manufacturing expenses [(62,500 + 3,750)/12) | 5521 | |||
| Administrative Expenses (14,000/12) | 1167 | |||
| Selling Expenses (13,000/12) | 1083 | 7771 | ||
| Total Current Assets (A) | - | 94631 | ||
| Current Liabilities: | ||||
| Sundry Creditors [(84,000 + 12,600 + 16,100)*1.5/12] | 14088 | |||
| Provision For Taxation (30% of 10,000) | 3000 | |||
| Total Current Liabilities (B) | - | 17088 | ||
| Working Capital Required [A-B] | - | 77543 | ||
| (ii). Estimate of Cash Cost of Working Capital: | Rs. | Rs. | ||
| Working Capital as per (i) above | 77543 | |||
| Less: Profit & Depreciation for which funds are not needed: | ||||
| Depreciation: | ||||
| Finished Goods (10% of 23,500) | 2350 | |||
| Work-in-progress [15% of (40% of 23,500)] | 1410 | |||
| Debtors [(23,500-2,350)*28,000/2,10,000] | 2820 | |||
| 6580 | ||||
| Profit included in Debtors (including income tax, i.e., Rs. 1,333)[30,000*28,000/2,10,000] | 4000 | 10580 | ||
| Cash Cost of Working capital Required | 66963 | |||
| PLEASE NOTE THE DIFFERENCE AND GUIDE ME ON THE SAME AT THE EARLIEST BY TAKING THE MATTER AS THE MOST URGENT!!! | ||||
Thanks in advance!!!
CAclubindia
