Calculation of Maximum Permissible Financing

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Babu Shetty (Querist)
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30 March 2009 Hello Everyone,

I am solving a problem related to the calculation of Maximum Permission Financing for working capital requirement based on Tandon's committees recommendation and got stuck at one point.

A balance sheet of a company shows the following 1 item under liabilities section.

Secured loans 450 lacs

It also includes the following additional information i.e.
1. Secured loans include installments payable to financial institutions before March 31st, 2009 of Rs. 100 lacs

2. Secured loans include working capital facility expected from Zonal Bank Rs. 300 lacs.

In this scenario, what figure of secured loan should I include in the current liabilities while calculating the financing limit for a bank.

Thanks for your help

Regards,

Babu Shetty

CA. B.SRINIVASULU

CA. B.SRINIVASULU (Expert)
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31 March 2009
Current liability to include - 100 Lakhs payable on or before 31st march 2009.

Installments payable on or before 31st march 2010.

Working capital facility - 300 Lakhs.

If you see the sanction letter you can find the wodings that the working capital facilities can be withdrawn at any time if the bankers are not satisfied. Therefore it should be treated on par with current liability.

Babu Shetty

Babu Shetty (Querist)
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31 March 2009 Hello Srinivasulu,

Thanks for taking your time in answering my question.

Based on my reading of the Tandon committee's recommendation, short term lending from banks should not be included under current liabilities. In this scenario, do you still think we need to consider 100 lakhs payable to financial institutions on or before March 2009 as current liabilities? I thought that financial institutions should be construed as Banks

Thanks & Regards,

Babu Shetty

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