Prepare an estimation of working capital needs from the subsequent information of a trading relates with:

(a)	Projected Annual Sales	1,00,000
(b)	Selling Price	Rs.8 per unit
(c)	Profit Margin on Sales	25%
(d)	Average Credit Period Allowed to Customers	8 weeks
(e)	Average Credit Period Allowed by Suppliers	4 weeks
(f)	Average Stock Holding in terms of Sales Requirement	12 weeks
(g)	Allow 10% for Contingencies

Solution:

 Statement demonstrating working Capital Requirements

(a)	Current Assets Stock (12 Weeks)	Rs. 1,38,462
	(Rs.6,00,000 × 12/52)	92,308
	Debtors (8 weeks)	2,30,770
	Rs. 6,00,000 × 8/52)
Less:	Current Liabilities	46,154
	Creditors (4 weeks)
	(6,00,000 × 4/52)
	Net Working Capital (A-B)	1,84,616
Add:	10% for Contingencies	18,462
	Total Working Capital Required

Working Notes

(i) Cost of Goods Sold

Sales = Rs. 1,00,000 . 8 = Rs. 8,00,000

Profits = Rs. 8,00,000 . 25%  = Rs. 2,00,000

Cost of Sales = Rs. 8,00,000-2,00,000= Rs. 6,00,000

(ii)  As, it is a trading concern; hence cost of sales is treated as purchases.

(iii) Profits have been ignored since profits may or may not be utilized as source of working capital.

Posted Date: 4/9/2013 3:23:12 AM | Location : United States

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