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Funding and Listing Numerical Questions

CS Professional

S.no. Topic Page no

1. Relevant Theory 1
2. Past exam questions 9
3. Answers 18

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Eligibility for IPO

An issuer shall be eligible to make an IPO only if:

a. the issuer has net tangible assets of atleast Rs. 3 crores on a restated and consolidated basis, in each of
the preceding three full years of (12 months each) of which not more than 50% is held in monetary assets;
However, if more than 50% of the net tangible assets are held in monetary assets, the issuer has utilized
or made firm commitments to utilize such excess monetary assets in its business or project. This limit of
50% shall not apply in case of IPO is made entirely through an offer for sale.

b. the issuer has an average operating profit of at least Rs.15 crores, calculated on a restated and
consolidated basis, during the three preceding years with operating profit in each of the three preceding
years;

c. the issuer has a networth of atleast Rs.1 crore in each of the preceding three full years, calculated on a
restated and consolidated basis. d. in case the issuer has changed its name within the last one year, atleast
50% of the revenue calculated on a restated and consolidated basis, for the preceding one full year has
been earned by it from the activity indicated by the new name.

(Net worth = Equity share capital + Share application money + Reserves and Surplus – Miscellaneous
expenses not written off – Deferred tax assets)

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Manner of Allotment

 The issuer shall not make an allotment pursuant to a public issue if the number of prospective
allottees is less than one thousand.
 The issuer shall not make any allotment in excess of the specified securities offered through the
offer document except in case of oversubscription for the purpose of rounding off to make
allotment, in consultation with the designated stock exchange.
 The allotment of specified securities to applicants other than to the retail individual investors and
anchor investors shall be on a proportionate basis within the respective investor categories and
the number of securities allotted shall be rounded off to the nearest integer, subject to minimum
allotment being equal to the minimum application size as determined and disclosed in the offer
document. However, the value of specified securities allotted to any person, except in case of
employees, in pursuance of reservation made under these regulations, shall not exceed two lakhs
rupees for retail investors or up to five lakhs rupees for eligible employees.
 The allotment of specified securities to each retail individual investor shall not be less than the
minimum bid lot, subject to the availability of shares in retail individual investor category, and the
remaining available shares, if any, shall be allotted on a proportionate basis.
 The authorised employees of the designated stock exchange, along with the lead manager(s) and
registrars to the issue, shall ensure that the basis of allotment is finalised in a fair and proper
manner in accordance with the procedure as specified in Part A of Schedule XIV.

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Pricing of equity shares - Frequently traded shares

A.
If the equity shares of the issuer have been listed on a recognised stock exchange for a period of twenty
six weeks or more as on the relevant date, the equity shares shall be allotted at a price not less than
higher of the following:

(a) The average of the weekly high and low of the volume weighted average price (VWAP) of the related
equity shares quoted on the recognised stock exchange during the twenty six weeks preceding the
relevant date; or

(b) The average of the weekly high and low of the volume weighted average prices of the related equity
shares quoted on a recognised stock exchange during the two weeks preceding the relevant date.

B.

Listed for less than 26 weeks If the equity shares of the issuer have been listed on a recognised stock
exchange for a period of less than twenty six weeks as on the relevant date, the equity shares shall be
allotted at a price not less than the higher of the following:

(a) the price at which equity shares were issued by the issuer in its initial public offer or the value per
share arrived at in a scheme of compromise, arrangement and amalgamation under sections 391 to 394
of the Companies Act, 1956 or sections 230 to 234 the Companies Act, 2013, as applicable, pursuant to
which the equity shares of the issuer were listed, as the case may be; or

(b) the average of the weekly high and low of the volume weighted average prices of the related equity
shares quoted on the recognised stock exchange during the period shares have been listed preceding the
relevant date; or

(c) the average of the weekly high and low of the volume weighted average prices of the related equity
shares quoted on a recognised stock exchange during the two weeks preceding the relevant date.

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Day count convention for Debt securities

SEBI has provided certain clarifications on aspects related to day count convention for debt securities
issued under the SEBI (Issue and Listing of Debt Securities) Regulations, 2008.

(a) If the interest payment date falls on a holiday, the payment may be made on the following working
day however the dates of the future coupon payments would be as per the schedule originally
stipulated at the time of issuing the security. In other words, the subsequent coupon schedule
would not be disturbed merely because the payment date in respect of one particular coupon
payment has been postponed earlier because of it having fallen on a holiday.

For example: Date of Issue of Corporate bonds: July 01 2016

Date of Maturity: June 30, 2018

Date of coupon payments: January 01 and July 01

Coupon payable: semi-annually

In this case, January 01, 2017 is a Sunday, thus the coupon would be payable on January 02, 2017
i.e. the next working day. However the calculation for payment of interest will be only till
December 31, 2016, which would have been the case if January 01, 2017 were not a holiday.
Also, the next dates of payment would remain July 01, 2017 and January 01, 2018 despite the fact
that one of the interest payment was made on January 02, 2017.
(b) In order to ensure consistency for interest calculation, a uniform methodology shall be followed
for calculation of interest payments in the case of leap year, which shall be as follows:

In case of a leap year, if February 29 falls during the tenor of a security, then the number of days
shall be reckoned as 366 days (Actual/Actual day count convention) for a whole one year period,
irrespective of whether the interest is payable annually, half yearly, quarterly or monthly etc. It is
thus emphasized that for a half yearly interest payment, 366 days would be reckoned twice as the
denominator; for quarterly interest, four times and for monthly interest payment, twelve times.
This is illustrated with the help of the following example:
Date of issue of corporate bonds: January 01, 2016
Coupon payable : Semi-annually
Date of coupon payments : July 01 and January 01
In the above example, in case of the leap year (i.e, 2016), 366 days would be reckoned as the
denominator (Actual/Actual), for payment of interest, in both the half year periods i.e. Jan 01,
2016 to Jul 01, 2016 and Jul 01, 2016 to Jan 01, 2017.

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Working Capital calculations: (IMP)

1. Operating cycle method

Operating cycle is also called the cash-to-cash cycle & indicates how cash is converted into
raw material, stocks in process, finished goods, bills (receivables) & finally back to cash.
Working capital is the total cash that is circulating in this cycle. Therefore, working capital can
be turned over or redeployed after completing the cycle.

2. Turnover method (Nayak committee)

This method of assessing working capital requirement of a firm is given by “Nayak Committee”.
The committee headed by Mr. P.R. Nayak examined the adequacy of institutional credit to SSI
sector and gave its recommendations which are as under:

Under this method, bank credit for working capital purposes for borrowers requiring fund based
limits up to Rs. 5 crore for Small Scale Industries borrowers and Rs. 2 crore in case of other
borrowers, may be assessed at minimum of 25% of the projected annual turnover, out of which
margin should be provided by the borrower (i.e. minimum margin of 5% of the annual turnover
to be provided by the borrower) and balance 4/5th (i.e. 20% of the annual turnover) can be
extended by way of working capital finance.

Since the bank finance is only intended to support the need based requirement of a borrower, if
the available Net Working Capital (net long term surplus funds) is more than 5%of the turnover
the former should be reckoned for assessing the extent of bank finance.

The projected turnover or output value may be interpreted as projected gross sales which will
include excise duty also.

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3. Maximum Permissible Banking Finance Method (Tandon Committee) :

A committee headed by Mr. P.L. Tandon, ex-chairman of PNB, was constituted with view to
suggest improvement in the existing ash credit system. It submitted its report on guidelines for
follow up of credit in August 1974, suggesting three methods of lending.

These are as follows:

1st Method of Lending: 75% of the working capital gap (Working Capital Gap= Total current
assets– Total current liabilities other than bank borrowings) is financed by the bank and the
balance 25% of the Working Capital Gap considered as margin is to come out of long term source
i.e. owned funds and term borrowings.

2nd Method of Lending: Bank will finance maximum up to 75% of total current assets (TCA) minus
the current liability and borrower has to provide a minimum of 25% of total current assets as the
margin out of long term sources. This will give a minimum current ratio of 1.33:1.

3rd Method of Lending: This is same as 2nd method of lending, but excluding core current assets
from total assets and the core current assets are financed out of long term funds of the company.
The term ‘core current assets‘ refers to the absolute minimum level of investment in current
assets, which is required at all times to carry out minimum level of business activity.

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4. Chore Committee : The R.B.I constituted, in April 1979, a working group under the
chairmanship of Sri K.B Chore, to review the system of cash credit with the particular
reference to the gap between sanctioned limit and the extent of their utilization. It was also
asked to suggest alternative type of credit facilities which would ensure greater credit
discipline and enable the banks to relate the credit limits to increase in output or other
productive activities. The committee recommended assessment of working capital
requirements have to be mandatorily assessed based on 2nd method of lending suggested by
Tandon Committee except for sick/Units under rehabilitation.

5. Cash Budget System : In case of tea, sugar, construction companies, film industries and service
sector requirement of finance may be at the peak during certain months while the sale
proceeds may be realised throughout the year to repay the outstanding in the account.
Therefore, credit limits are fixed on the basis of projected monthly cash budgets to be
received before beginning of the season.

Limit of letter of credit

Assessment of Limit of Letter of Credit

Annual Raw Material Consumption Irrelevant
Annual Raw Material Procurement through LC B
Monthly Consumption of RM procured through LC (B/12) C
Usance (Credit period available) D
Lead time E
Total time (in months) F = (D + E)
LC required for G= (F * C)

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PAST EXAM QUESTIONS

1. Commercial Paper is sold at a discount from its face value and redeemed at its face value.
Calculate the pre-tax cost on annualised basis of commercial paper, if face value is Rs. 5,00,000,
maturity period is 180 days and net amount realized is Rs. 4,80,000. (Assume 360 days in a year.)
(June 2019)

2. You are required to compute Maximum Permissible Bank Borrowings (MPBB) under three
methods of Tandon Committee Norms pertaining to M L Ltd. from the following data and how
you will present it to the Board :

Existing Current Assets (in Rs.)

Raw materials 8,00,000
Work in progress 80,000
Finished goods 3,60,000
Receivables 2,00,000
Other current assets 40,000
TOTAL 14,80,000

Existing Current Liabilities (in Rs.)

Creditors for purchases 4,00,000
Other current liabilities 2,00,000
Bank borrowings 8,00,000
TOTAL 14,00,000

Core current assets are Rs. 3,80,000. (June 2019)

3. On the basis of following information, calculate the limit for Letter of Credit (LC) for the Financial
Year 2019-20 of M/s Madhukar Enterprises : (Dec 2019)
Estimated Raw Material purchase for the FY 2019-20 172.64 Crore
Estimated purchase under Letter of Credit for FY 2019-20 (LC) 69.41 Crore
Lead time i.e. time from order placement to shipment 10 days
Transit Time 20 days
Credit (Usance) Period available 3 months
4. Following data relates to M/s ABC Pvt. Ltd. : (Dec 2019)
Creditors for purchases 200 Raw materials 380
Other Current Liabilities 100 Work in progress 40
Finished goods 180
Receivables 110
Other current assets 30

Calculate the Maximum Permissible Bank Finance (MPBF) as per the Tandon Committee
Recommendations using the norm of a current ratio of 1.33.

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5. Balance Sheet of X company as at 31st March, 2018 and its statement of changes in financial
position for the year ending on 31st March, 2019 are presented below:

Balance sheet as at 31st March 2018

Liability Assets
Common Stock 6,000 Land 9,800
Reserves 6,560 Equipment 12,200
Preferential Stock 2,500 Accumulated Depreciation (2,000)
Long term Bonds 7,000 Inventory 2,370
Amount Payable 2,140 Amount Receivable 1,300
Cash 530
24,200 24,200

Statement of changes in Financial Position for the year ended on 31st March, 2019:
Sources Uses
Net Income 1,200 Paid Cash Dividend 360
Depreciation 600 Repaid Preferential Stock 2,500
Loss on sale of land (80) Retired Bond Payable 1,400
Issued Stock 4,000 Purchased Equipment 3,000
Sold land 1,880 Increase in Working Capital 340
7,600 7,600

Calculate the working capital as on 31st March, 2019. (Dec 2020)

6. From the following particulars, calculate the effective interest cost per annum to ABC Ltd.,
which is planning a CP (Commercial Paper) issue :
Issue price of a CP : 97,350
Face Value : 1,00,000
Maturity period : 3 Months (Dec 2020)

7. ABC Ltd. is considering a right issue by issuing one share against two shares to raise funds to
finance a new project requiring 4.5 Crore. The floatation cost will be 10% of funds raised. The
company currently has 18 Lakh shares outstanding and the current price of its share is ₹ 100. The
subscription price has been fixed at 50 per share.
Calculate the value of a right. (Dec 2020)

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8. The following data pertains to XYZ Ltd :

Projected Sales 20,00,000

Creditors 3,00,000
Bank Borrowings 3,30,000
Current Assets 7,40,000

Assess the Working Capital requirement of XYZ Ltd. using the method given by Nayak Committee.
(June 2021)

9. On the basis of the following information, calculate the operating cycle of Raksha Goods Limited

As at April 1, 2019 As at March 31, 2020

Inventory 4,00,000 3,80,000
Accounts receivable 18,00,000 22,50,000

The sales and cost of goods sold for the year ended March 31, 2020 are ₹ 2,65,00,000 and ₹
1,55,00,000 respectively. (Dec 2021)

10. Somaskanda Printers Limited approached Support Bank, for working capital facilites. The
projected annual turnover of the Company is ₹ 1,85,00,000. Explain the assessment of working
capital requirement as per Nayak Committee and compute the working capital finance which can
be extended by the Bank. (Dec 2021)

11. Alphameter Technologies Limited has outstanding guarantees of ₹ 92 crore as on March 31, 2019.
During the year, Company had given new guarantees of Rs. 8 crore to the Telecom Department
for new telephone lines. The income tax assessment proceedings for the Assessment Year (AY)
2014-15 have concluded and the Department has released bank guarantees of ₹ 21 crore which
the company had provided earlier. The Department has demanded an additional guarantee of 2
crore towards the interest for the AY 2015-16, for which the Company had provided guarantee of
14 crore in previous years. Compute the bank guarantee limits as on March 31, 2020. (Dec 2021)

12. X Ltd. wants to issue 1000 shares through a book built offer within a Price Band of ₹130 to ₹150.
Bids are received as follows:

Bid Price No. of Shares Total Demand

1 ₹150 200 200
2 ₹140 300 500
3 ₹138 500 1000
4 ₹130 1000 2000

(a) What is the cut off price in this offer? Can the company decide the cut off at a lower price at
which the issue is subscribed? Can the company allot the shares to the retail investors at a price
that is at a discount to the cut off price?

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(b) What would be the allocation pattern, presuming the company fulfils the eligibility criteria
regarding net tangible assets, average operating profit, net worth etc.?

(c) What would be allocation pattern, if the company does not meet the criteria as mentioned
above in question no. 1 (b)? (June 2022)

13. MSC Ltd would like to issue Commercial Paper (CP). Calculate the effective interest yield of the
commercial paper (CP) from the following data :
Particulars Amount in ₹
Face Value 10,00,000
Sale Price 9,91,000
Maturity Period 120 days
Brokerage and other charges 2.50%
Consider One Year = 360 days (June 2022)

14. Gulab Ltd is a newly incorporated company and it would like to purchase raw materials from
domestic sources as well as from other countries under Letter of Credit (LC). On the basis of the
following information, calculate the limit for Letter of Credit (LC) for the Financial Year 2021-22:
(i) Estimated Raw Material purchase for FY 2021-22 ₹240 crore
(ii) Estimated purchase under Letter of Credit (LC) for ₹216 crore
FY 2021-22 (90%)
(iii) Of which import of Raw Material under Letter of ₹64.80 crore
Credit (30%)
(iv) Lead Time
– Domestic 1 Month
– Import 2 Months
(v) Transit Time
– Domestic 1 Month
– Import 2 Months
(vi) Credit (Usance) Period available
– Domestic 1 Month
– Import 4 Months
(June 2022)

15. Moon Ltd makes an application for Bank Guarantee Limit for the Financial Year 2021-22 with
following data to PQR Bank Ltd :
(i) Outstanding Bank Guarantee as per the last Audited Balance Sheet : ₹95 lakhs
(ii) Bank Guarantee required for the Financial Year 2021-22 : ₹115 lakhs
(iii) Estimated maturity or Cancellation during the period : ₹65 lakhs
Compute the Bank Guarantee limit of Moon Ltd for the Financial Year 2021-22. (June 2022)

16. Sunlight Solar Ltd decides to issue six right shares for every eleven shares held. The right shares
are priced at ₹561 each and the present cum-right price of the company’s share traded in the
NSE/BSE is ₹785. Average Floating Cost of each right share is ₹10. Calculate the fair value of the
right. (June 2022)

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17. Following is the extract from the Balance Sheet of M/s YBL Ltd. as on 31 March, 2022 :

Current Liabilities Amount (₹ in Current Assets Amount (₹ in

lakh) lakh)
Bank Borrowings 820 Inventories 650
Trade Payables 200 Financial Assets
Other current Liabilities 180 1. Investments 250
2. Trade Receivables 75
3. Cash and 125
CashEquivalents
4. Bank Balance 150
otherthan (iii) above
5. Other Financial Assets 350
YBL Limited has bank borrowings of ₹ 820 Lakhs which includes bills discounted with the bank. It
wishes to avail loan for its working capital and approaches your bank for financing. While
maintaining the minimum current ratio of 1.33, calculate the Maximum Permissible Bank Finance
(MPBF) as per methodology suggested by Tondon Committee. Should the bank sanction the loan
request or not? (Dec 2022)

18. There is a proposal with the Board of directors of Sun Ltd. to give loan of ₹ 250 Lakhs to M/s Moon
Ltd. Following are the extract of the financial statement of M/s Sun Ltd. Board of directors of M/s
Sun Limited seeks your advice with regard to loan limit which the Board of Sun Limited can
sanction pursuant to limits for loan under Section 186. Based on your calculation, can the
company give loan of ₹ 250 lakhs to Moon Limited ? Suppose if it exceeds the limits, what option
is available with M/s Sun Ltd.?

Liabilities Amount Assets Amount

(₹ in lakh) (₹ in lakh)
Paid up Capital 250 Investments in Equities 50
Securities Premium Account 200 Debentures and Bonds 15
General Reserve 150 Government Securities 25
Retained Earnings 25 Loans given to other 40
companies
Revaluation Reserve 10 Inter Corporate Deposits 120
Guarantees given to 20
other companies
(Dec 2022)

19. The projected financial information of M/s Bansiwala is as given below :

Projected Annual Sales ₹6,50,000
Percentage of net profit on sales 25%
Average credit period allowed to debtors 10 weeks
Average credit period allowed by creditors 4 weeks
Average stock holding in terms of sales requirement 8 weeks

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On the basis of above information, calculate the following :

(i) Current Ratio and
(ii) Working Capital. (Dec 2022)

20. A company issued Commercial Paper (CP) having a face value of ₹5 lakhs for 90 days’ maturity at
the interest rate of 10% p.a. of issue price. Calculate its issue price assuming 365 days in a year.
(Dec 2022)

21. ABC Limited is a trading company. Its annual turnover is ₹ 4000 lakhs out of which ₹ 2800 lakhs is
on credit. Its average collection period is 90 days and presently its receivable collection cost is ₹
35 lakh p.a. The company needs immediate funds to finance its growth projects and it has an
option to take short-term loans at interest rate of 18% p.a. Recently, one of the factoring company
visited the Chief Executive of ABC Limited and offered him to provide the factoring services on
recourse basis. As per terms of factoring arrangement, factoring company will provide for an
advance payment of 80% (maintaining factor reserve of 20% to provide for disputes and
deductions relating to the bills assigned) of the value of factored receivable and for guaranteed
payment after 90 days from the date of purchasing the receivables. The advance will carry a rate
of interest of 12% per annum. In addition to interest, factoring company will charge factoring
commission @ 2.5% of the value of factored receivables. Both the interest and commission shall
be collected by factoring company on upfront basis. You are the Company Secretary of ABC
Limited and you have been requested to prepare a report containing the following aspects.
(a) What is the net annual cost of funding through factoring of receivables assuming 360 days in a
year?
(b) Whether it is appropriate to choose the factoring of receivable in comparison to short term bank
loan?
(c) Whether your advice would be changed if the clause of 'on recourse basis' is negotiated ‘on
nonrecourse basis' keeping the other terms of agreement with factoring company as same. The
experience indicates that bad debt losses on sales are 2% of sales. ( June 23 )

22. From the latest CMA data of Vancouver Ltd., the projected figures are as under :

- Sales Rs. 10 crore

- Total current assets : Rs. 7 crore
- Current Liabilities : Rs. 3 crore

You are required to calculate the working capital requirement under turnover method and
maximum permissible banking finance method (method l). ( Dec 23 – OS )

23. XYZ Factoring Ltd. has agreed to finance receivable of IFK Ltd. on a term of advances 80% of the
receivables with 10% p.a. interest and 2% commission as factoring. Based on the below
information, find the net amount to be remitted by XYZ Factoring Ltd.

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- Annual credit sales = ` 1 crore
- Average collection period = 60 days
- Saving in administration cost = ` 1,00,000
- Bad debts = Nil.

*Assume 365 days in a year for calculation purpose. ( Dec 23 – OS )

24. Calculate the amount of fund based and non-fund based credit facilities availed by Yamuna Ltd.
from Bank from the following details :

Sr. No. Credit facilities provided by Rs in Lakhs

1. Standby letter of credit 2.50
2. Clean Overdraft 9.80
3 Bank Guarantee 12.50
4 Car loan 60.95
5 Letter of Credit 22.50
6 Key Cash Credit 35.50
7 Post Shipment Packing Credit 80.40
8. Suppliers Credit 30.50
Total Credit Facilities 254.65

( Dec 23 – OS )
25. RST Ltd is preparing to issue a ` 10 crore specified securities offered at ` 600 per share. The total
specified securities also include offer made to :

Qualified Institutional Buyers (QIBs) - Rs. ` 6.66 crore specified securities

Retail Individual Investors (RII) - Rs ` 1.00 crore specified securities

Considering the above facts, comment on :

(1) How many specified securities can Romesh apply in the net offer category ?
(2) What is the maximum number of specified securities which non-institutional investors can apply
in the said issue ? ( June 24 – OS )

26. How is the day count dealt with under SEBI (Issue and Listing of Debt Securities) Regulations, 2018,
in normal situation and in case of a leap year ?

In the light of the above convention explain the following situation :

Date of issue of corporate bonds : January 01, 2024

Coupon payable : Quarterly

Date of coupon payments : April 01, July 01, October 01 & January 01. ( June 24 – OS )

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27. DAL Ltd is in urgent need of funds and hence decides to discount its invoices worth ` 2 crore which
are due in the next 2 months. Blue Ltd factor is ready to make a payment of 80% of the invoice to
the company at flat @ 2% discount rate for the first 30 days and @ 3% discount for 60 days on the
full invoice value.

Calculate the factoring cost / fee for DAL Ltd for 60 days. ( June 24 – OS )

28. SCL Ltd has outstanding bank guarantee of ` 325 Lakh as per Audited Balance Sheet of March 31,
2023. During the year 2023-24 the Company availed additional bank guarantee of ` 125 lakh. The
Company needs additional bank guarantee of ` 750 lakh in December 2023 in order to meets its
one-time. The bank guarantees maturing and cancelled by December 2023 are worth ` 250 lakh and
` 120 lakh respectively. The Bank guarantees cancelled during the year are worth ` 150 lakh. The
Company has ` 850 lakh as sanctioned Bank Guarantee Limit.

Given these circumstances, you are required to assess whether the company should enhance its
bank guarantee or if the existing bank guarantee will suffice to cover the additional requirement of
` 750 lakh. ( June 24 – OS )

29. PRAKS Ltd. is planning for an IPO of 200,000 shares, at a book-built price of ` 100 each, resulting in
an IPO size of ` 200,00,000. As per the ICDR Regulations, the over- allotment component under the
Green Shoe mechanism could be up to 15% of the IPO. Prior to the IPO, the stabilising agent would
borrow such number of shares to the extent of the proposed Green Shoe shares from the pre-issue
shareholders. These shares are then allotted to investors along with the IPO shares. The total shares
issued in the IPO therefore stands at 230,000 shares. IPO proceeds received from the investors for
the IPO shares, i.e. ` 200,00,000 being 200,000 shares at the rate of ` 100 each, are remitted to the
Issuer Company, while the proceeds from the Green Shoe Shares are parked in a special escrow
bank account, i.e. Green Shoe Escrow Account. During the price stabilization period, if the share
price drops below ` 100, the stabilising agent would utilize the funds lying in the Green Shoe Escrow
Account to buy these back shares from the open market. This gives rise to the following three
situations, examine all situations given below with reference to the role of stabilising agent.

(a) Where the stabilising agent manages to buyback all of the Green Shoe Shares, i.e., 30,000 shares;
(b) Where the stabilising agent manages to buyback none of the Green Shoe Shares;
(c) Where the stabilising agent manages to buy-back some of the Green Shoe Shares, say 20,000
shares. ( June 24 – NS )

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30. (a) Balance sheet of GKJ Ltd. for the year ended 31st March, 2024 is given below :

Liabilities Amount ( Rs. Assets Amount ( Rs. Lakh

Lakh ) )
Equity Share Rs 10 each 200 Fixed Assets 500
Retained Earnings 200 Raw Materials 150
11% Debentures 300 W.I.P 100
Public Deposits ( Short – 100 Finished Goods 50
term )
Trade Creditors 80 Debtors 125
Bills Payable 100 Cash / Bank 55
980 980

Calculate the amount of maximum permissible bank finance under three methods as per Tandon
Committee lending norms. The total core current assets are assumed to be ` 30 lakh.

(b) From the following information of Ganpati Ltd., you are required to calculate :

(i) Net operating cycle period.

(ii) Number of operating cycles in a year.

Particulars ( Rs. )
Raw Material Inventory consumed during the year 6,00,000
Average stock of raw material 50,000
Average cost of production 5,00,000
Average work-in-progress inventory 30,000
Cost of goods sold during the year 8,00,000
Average finished goods stock held 40,000
Average collection period from debtors 45 days
Average credit period availed 30 days
No. of days in a year 360 days

( c ) Galaxy Ltd. is a newly incorporated company and it would like to purchase raw materials from
domestic sources as well as from other countries under Letter of Credit (LC). On the basis of the
following information, calculate the limit for Letter of Credit (LC) for the Financial Year 2024-25 :

(i) Estimated Raw Material purchase for FY 2024-25 Rs 480 crore

(ii) Estimated purchase under Letter of Credit (LC) for FY 2024-25 (90%) Rs 432 crore
(iii) Of which import of Raw Material under Letter of Credit (30%) Rs` 129.60 crore
(iv) Lead Time :
Domestic 1.5 months
Import 2.5 months
(v) Transit time :
Domestic 1.5 Months
Import 2.5 months
(vi) Credit ( Usance ) Period available :
Domestic 2 months
Import 5 months

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ANSWERS

Question 1: June 2019 (3 marks)

𝐹𝑎𝑐𝑒 𝑉𝑎𝑙𝑢𝑒−𝐴𝑚𝑜𝑢𝑛𝑡 𝑟𝑒𝑎𝑙𝑖𝑠𝑒𝑑 (𝑁𝑒𝑡) 360

Cost of commercial paper = ∗
𝑁𝑒𝑡 𝑎𝑚𝑜𝑢𝑛𝑡 𝑟𝑒𝑎𝑙𝑖𝑠𝑒𝑑 𝑀𝑎𝑡𝑢𝑟𝑖𝑡𝑦 𝑝𝑒𝑟𝑖𝑜𝑑

(500,000−4,80,000)
= ∗ 360 = 8.33%
4,80,000 180

Question 2: June 2019 (5 marks)

Maximum Bank Borrowings: (Tandon Committee norms)

Method – I Method – II Method – III
= 0.75 (CA-CL) = 0.75 (CA) -CL = 0.75 (CA –CAA)- CL
= 0.75(14,80,000-6,00,000) = 0.75(14,80,000) - 6,00,000 = 0.75(14,80,000- 3,80,000)-
6,00,000
= 0.75(8,80,000) = 5,10,000 = 0.75 (11,00,000)- 6,00,000
= 6,60,000 = 2,25,000

Review:
Method – I Method – II Method – III
Maximum Bank Borrowings 6,60,000 5,10,000 2,25,000
Actual Bank Borrowings 8,00,000 8,00,000 8,00,000
Excess Bank Borrowings 1,40,000 2,90,000 5,75,000

Under all the 3 methods, the excess bank borrowings can be converted in to long term debt.

Question 3: December 2019 (5 marks)

Sr. No. Particulars

A Annual Consumption of Raw Material (RM) to be Rs. 69.41 Crore
purchased under Letter of Credit (LC)
B Average monthly purchase of Raw Material Rs. 69.41/12
Rs. 5.78 Crore
C Lead time i.e. time from order placement to 10 days
shipment
D Transit Time 20 days
E Credit (Usance) Period available 3 months
F Total Period (C+D+E) 4 months
G Requirement of LC (BX F) i.e. Rs. 5.78 x 4 Rs. 23.14 Crore
i.e. LC limit recommended Rs. 23 Crore

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Question 4: December 2019 (5 marks)

Working Note:
Particulars Amount (Rs. In lakhs)
Raw Material 380
Work in Process 40
Finished Goods 180
Receivables 110
Other Current Assets 30
Total Current Assets 740

Calculation of Maximum Permissible Bank Finance (MPBF) as per 2nd Method of Lending (Tandon
Committee Recommendations) are as under:

Particulars Amount (Rs. in lakh)

Total Current Assets (TCA) 740
Less : Current Liabilities other than banking borrowing 300
Working Capital Gap (WCG) (l -2) 440
Less : 25% of Total Current Assets (25% of l) 185
Maximum Permissible Bank Finance (MP BF) (3-4) 255

With this additional borrowing the Current Liabilities shall become Rs. 555 lakhs (300 + 255) and the new
Current Ratio shall become 1.33 (740/555).

Question 5: December 2020 (5 marks)

Working capital as on 31st March, 2018

Opening w. c.(Rs.) = Cash + AR + Inv. – AP

= 530+1300+ 2370 -2140

= 2060

Hence W.C. as on 31st March 2019

= Opening w.c. + change in w.c. for the year ended on march 31, 2019

= Rs. 2060 + Rs.340

= Rs. 2400

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Question 6: December 2020 (5 marks)

Interest amount (Rs.) = 1,00,000 – 97,350

= 2,650

Maturity period = 3 months

𝑓−𝑃 12
Effective interest = × × 100
𝑝 𝑚

100,000−97,350
= × 12 × 100
97,350 3

=10.89%

Question 7: December 2020 (5 marks)

MPCR- OP
Value of rights =
N0+N1
100-50
=
2+1

= 16.67%

Question 8: June 2021 (3 marks)

Net Working Capital = Current Assets - Current Liabilities i.e Bank Borrowings & Creditors

Net Working Capital = ₹7,40,000 - ₹6,30,000 = ₹1,10,000

(i) Minimum Working Capital required i.e 25% of Sales = 25% of 20,00,000 = ₹ 5,00,000

(ii) Margin or Minimum Borrower’s contribution i.e. 5% of projected sales = 5% of 20,00,000 = ₹ 1,00,000

(iii) Margin or Net Working Capital whichever is higher to be deducted from 25% of Sales i.e. ₹ 5,00,000 –
₹ 1,10,000 = ₹ 3,90,000

So, maximum permissible finance as per Nayak Committee's recommendation in the case under
consideration shall be ₹ 3,90,000.

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Question 9: Dec 2021 (5 marks)

Calculation of Operating Cycle of Raksha Goods Limited

Operating cycle = Inventory period + Accounts receivable period

Inventory period = Average inventory/Cost of goods sold * 365

Average Inventory = (₹4,00,000 + ₹3,80,000)/2 = ₹3,90,000

Inventory period = ₹3,90,000 / ₹1,55,00,000 * 365 = 9.18 days

Average Accounts receivable = (₹18,00,000 + ₹22,50,000)/2 = ₹20,25,000

Accounts receivable period = ₹20,25,000 / ₹2,65,00,000 * 365 = 27.89 days

Operating cycle = 9.18 + 27.89 days = 37.07 days

Question 10: Dec 2021 (5 marks)

Computation of Working Capital

Particulars Amount (in ₹)

Projected Sales turnover 1,85,00,000
Working Capital Limit (25% of annual turnover) 46,25,000
Permissible Bank Finance 46,25,000 - 9,25,000=37,00,000
Minimum money from borrower (5% of Projected Sales 9,25,000
Turnover)

Question 11: Dec 2021 (5 marks)

Computation of Bank guarantee limits as on March 31, 2020

Particulars Amount (in ₹

crores)
Outstanding Bank Guarantee as on 31st March 2019 92 A
Bank guarantees including additional guarantee issued during the 10 B
period (8 cr. + 2 cr.)
Bank guarantees released during the year 21 C
Bank Guarantee Limits as on 31st march 2020 81 D=A+B-C

Notes:

• ₹ 92 crores have been considered as the opening bank guarantees outstanding as on April 1, 2019
• Additions during the year include ₹ 8 crore and ₹ 2 crore bank Guarantee provided towards the
interest with the income-tax department
• ₹ 14 crores have not been considered separately, as it was provided during the earlier years and is
included in the opening guarantees as on April 01, 2019
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Question 12: June 2022 (5 marks)

(a) The offer is filled up at the cut-off price of ₹138. All investors who bid at ₹138 and higher are eligible
for allotment in their respective categories. The company may decide the cut-off price at a price lower
than the price at which the issue is subscribed for the benefit of the investors. Book built issue may
also have a clause which allows allotment to retail investors at a price, which is at a discount to the
cut off price, which cannot, however exceed 10% of the price at which shares are allotted to the other
category of investors.

(b) Regulation 32(1) & 129 (1) of SEBI (ICDR) Regulations, 2018 provides that in a book built offer, where
the issuer fulfils the eligibility criteria regarding net tangible assets, average operating profit, net
worth etc., the allocation pattern in the net offer shall be as follows:

a) Not less than 35% to the retail individual investors

b) Not less than 15% to non-institutional investors

c) Not more than 50% to the QIBs of which 5 per cent shall be reserved for mutual funds.
However, the unsubscribed portion in either of the categories specified in (a) & (b) may be allocated
to applicants in any other category.
Further, in addition to 5% allocation available in terms of clause (c), mutual funds shall be eligible for
allocation under the balance available for qualified institutional buyers.
(c) Regulation 32(2) & 129 (2) of SEBI (ICDR) Regulations, 2018 provides that in bookbuilt offer, where a
company does not meet the eligibility criteria regarding net tangible assets, average operating profit,
net worth etc., the allocation pattern shall be as follows:

a) Not more than 10% to the retail individual investors

b) Not more than 15% to non-institutional investors

c) Not less than 75% to the QIBs of which 5% shall be reserved for mutual funds.

However, the unsubscribed portion in either of the categories specified in (a) & (b) may be allocated
to applicants in the other category. Further, in addition to 5% allocation available in terms of clause
(c), mutual funds shall be eligible for allocation under the balance available for qualified institutional
buyers.

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Question 13: June 2022 (5 marks)

Calculation of effective interest yield of Commercial Paper (CP) of MSC Ltd.

Particulars Amount in ₹
Face Value 10,00,000
Sale Price 9,91,000
Maturity Period 120 days
Brokerage and other Charges 2.50%
Brokerage Value (2.50% of ₹10,00,000) 25,000
Net Sale Price (₹9,91,000 - ₹25,000) 9,66,000

Yield = [(Face Value - Sale Price)/Sale Price] * (360/Maturity Period) * 100

= [(₹10,00,000 - ₹9,66,000) / ₹9,66,000)] *(360/120) *100

= 10.559%

Question 14: June 2022 (5 marks)

Calculation of Inland & Foreign Letter of Credit Limit of Gulab Ltd. for the Financial Year 2021-22

Annual Raw Material Consumption for A ₹240 crore

FY 2021-22
Estimated purchase under Letter of Credit B ₹216 crore
(LC) for FY 2021-22 (90 %)
Calculation of Calculation of FLC*
ILC*
Annual Raw Material Procurement C ₹151.20 crore ₹64.80 crore
through ILC/FLC
Monthly Consumption D ₹12.60 crore ₹5.40 crore
Lead Time (Time from order placement E 1 Month 2 Months
to shipment)
Transit Time F 1 Month 2 Months
Credit (Usance) Period Available G 1 Month 4 Months
Total Period H=E+F+G 3 Months 8 Months
LC limit Required for FY 2021-22 I=D*H ₹37.8 crore ₹43.2 crore

* ILC = Inland Letter of Credit

* FLC = Foreign Letter of Credit

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Question 15: June 2022 (5 marks)

Computation of Bank Guarantee limit of Moon Ltd for Financial Year 2021-22

Amount in ₹
A Outstanding Bank Guarantee as per Audited Balance Sheet 95 lakhs
B Add : Bank Guarantee required during the period 115 lakhs
C Less : Estimated maturity or Cancellation during the period 65 lakhs
D Requirement of Bank Guarantee (A+B-C) 145 lakhs

Question 16: June 2022 (5 marks)

Value of each share after rights issue = Total Holding value (including Right Shares) /Total Number of
Holding (including Right Shares)

Value of Right = Market Value of Share – Value of share after rights issue
A Market value of the 11 existing holdings @ ₹785/- per share) ₹8,635/-
B Issue Price of 6 new holdings @ ₹561 ₹3,366/-
Total holding 17 shares
A+B Value of holdings ₹12,001/-
Value of each share (₹12,001/17 shares) ₹705.94/-
Fair Value of the Right ₹(785-705.94)
= ₹79.06
Value of Right : ₹79.06

Alternate Answer

Value of Right = [Number of Rights Shares/ Total Shares (Old + New Holdings)] x

[(Market Value – Right issue price)]

6/17 x (₹785 - ₹561)

6/17 x 224 = ₹79.06

Value of Right : ₹79.06

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Question 17: Dec 2022 (5 marks)

Calculation of Maximum Permissible Bank Finance and decision making

To maintain the minimum current ratio of 1.33, Second method of lending as suggested by Tondon
Committee would be used wherein maximum financing by bank can be up to 75% of current assets. Soas
per the suggested methodology, Maximum Permissible Bank Finance (MPBF) as per Tondon Committee
would be:

MPBF = 75% (Current Assets) - Current Liabilities (excluding Bank Borrowings)

Or

MPBF = [Current Assets – Current Liabilities (excluding Bank Borrowings)] – 25% of Current Assets

MPBF would be

= 75% (₹1600 Lakhs) – ₹380 Lakhs

= ₹1200 Lakhs – ₹380 Lakhs

= ₹820 Lakhs

OR

= [₹1600 Lakhs – ₹380 Lakhs] – 25% of ₹1600 Lakhs

= ₹1220 Lakhs – ₹400 Lakhs = ₹820 Lakhs

Since YBL Ltd. has already availed Maximum Permissible Bank Finance and hence have reached the
minimum current ratio of 1.33:1 via borrowings of ₹820 Lakhs, the Bank Manager should not sanction
the loan request of YBL Ltd.

Question 18: Dec 2022 (5 marks)

Decision Making with regard to Inter Corporate Loans and Deposits

In pursuant to provisions of Section 186(2) of the Companies Act 2013, no company shall directly or
indirectly

- give any loan to any person or other body corporate,

- give any guarantee or provide security in connection with a loan to any other body corporate or person,
and

- acquire by way of subscription, purchase or otherwise, the securities of any other body corporate
exceeding 60% of its paid-up share capital plus free reserves plus securities premium account or 100% of
its free reserves plus securities premium account, whichever is more.

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Further, Section 186 (3) of Companies Act, 2013 empowers a Company to give loan, guarantee or provide
any security or acquisition beyond the limit but subject to prior approval of members by a special
resolution passed in a general meeting. In the given case, Limit pursuant to Section 186 for Sun Ltd. is as
below:

I) 60% (Paid up capital + Free Reserves + Securities Premium Account) = 60% of ₹625 Lakhs = ₹375 Lakhs

II) 100% of Free Reserve = ₹375 Lakhs

Higher of I & II above = ₹375 Lakhs

As per balance sheet of Sun Ltd., it has already have provided loans and Investment and Guarantee for
amount of ₹270 Lakhs. Hence, the Board of Sun Ltd. cannot give loan of additional loan of ₹250 Lakhs
which taken with existing loan / investment / guarantee would be ₹270 Lakhs plus ₹250 Lakhs i.e. ₹520
Lakhs.

However, Sun Limited can seek prior approval of members by a special resolution passed in a general
meeting and give loan to Moon Ltd.

Question 19: Dec 2022 (5 marks)

Calculation of Working capital

Step No.
Working Notes: ₹6,50,000 - 25% on
Sales - Net Profit = Cost of goods sold ₹6,50,000
= ₹4,87,500
CURRENT ASSETS (CA)
Step 1 ** Debtors (10 weeks) at cost (4,87,500 x ₹93,750
10 weeks)/ 52 Weeks
Step 2 Stock (8 Weeks) (4,87,500 x 8 Weeks)/ 52 Weeks ₹ 75,000
Total Current Assets ₹ 1,68,750
CURRENT LIABILITIES (CL)
Step 3 Creditors (₹ 4,87,500 x 4 Weeks)/ 52 Weeks ₹ 37,500
Step 4 (i) Current Ratio: CA/CL - (₹ 1,68,750 / ₹37,500) 4.5: 1
Step 5 (ii) Working Capital (CA-CL): (₹1,68,750 - ₹ 37,500) ₹1,31,250

**Some students may calculate the debtor at full value, in such case,the alternative solution would be
as under :

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CURRENT ASSETS Amount (₹ )

Step 1 *Debtors (10 weeks) at sales price 1,25,000
(6,50,000 x 10 weeks)/52 Weeks
Step 2 Stock (8 Weeks) ( 4,87,500 x 8 Weeks)/ 52 Weeks 75,000
Total Current Assets 2,00,000
CURRENT LIABILITIES
Step 3 Creditors (₹4,87,500 x 4 Weeks)/ 52 Weeks 37,500
Step 4 (i) Current Ratio (₹2,00,000/ ₹37,500) 5.33: 1
Step 5 (ii) Working Capital (₹2,00,000 / ₹ 37,500) 1,62,500

Question 20: Dec 2022 (5 marks)

Calculation of Issue Price of Commercial Paper

Face Value (FV) of Commercial Paper : ₹ 5,00,000

Rate of Interest (ROI): 10% p.a.

Period of maturity: 90 Days

Issue Price = Face Value / (1+rate * time)

= ₹ 5,00,000/ (1+10%*90/365)

= ₹ 4,87,967.91 or ₹4,87,968

Question 21 : June 2023 ( 5 marks each )

(a) Net Annual Cost of Funding from the Factoring of receivables

Particulars Rs. In Lakh

Average level of Receivables = ₹ 2800 lakh x 90/360 700.000

Less: Factoring commission = ₹ 700 lakh x 2.5% 17.500

Less. Factoring reserve = ₹ 700 lakh x 20/100 140.000

Amount available for advance 542.500

Less: Interest on advance @ 12% 16.275

₹ 542.50 Lakhs x 12 x 90

100 x 360

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Amount of advance received from the factoring company after deducting 526.225
commission and interest

Total cost of factoring for 90 days = ₹ 17.500 Lakhs + ₹16.275 Lakhs) 33.775

Annual Cost of factoring - ₹ 33.775 * 360/90 135.100

Less: saving in cost of receivable collection cost 35

Net Cost of factoring of receivables on annual basis 100.100

(b)

Effective annual cost of factoring 19.02%

₹ 100.10 Lakhs x 100

526.225

Cost of Short Term Loan 18%

Since the effective annual cost of factoring i.e. 19.02% is higher than the cost of short term loan i.e. 18% ,
it is not appropriate to choose the factoring of receivables in comparison to short term loan.

(c)

If terms of agreement are negotiated from Recourse Factoring to Non-Recourse Factoring keeping the other
terms of agreement same, it is advisable to opt for ‘on Non-recourse basis’ clause since it will reduce the
effective cost of factoring to 17.02% (19.02% -2.00%) which is lower than the cost of Short Term Loan i.e 18%.

Question 22 : Dec 23 ( 5 marks )

i) Working Capital requirement under the turnover method

Under this method, bank credit for working capital purposes for borrowers requiring fund may
be assessed at minimum of 25% of the projected annual turnover out of which 1/5h should be
provided by the borrower (i.e. minimum margin of 5% of the annual turnover to be provided by
the borrower) and balance 4/5th (i.e. 20% of the annual turnover) can be extended by way of
working capital finance.

The working capital requirement will be as under:

Projected sales = Rs. 10 crore

Working capital requirement (25% of Projected Sales) -A = Rs. 2.50 crore

Minimum margin (5% of Projected Sales) - B = Rs. 0.50 crore

Working capital limit (A-B) = Rs. 2.00 crore

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ii) Maximum Permissible Banking Finance (1st Method of Lending) :

As per this method, 75% of the working capital gap (Working Capital Gap- Total current assets-
Total current liabilities other than bank borrowings) is financed by the bank and the balance 25%
of the Working Capital Gap considered as margin is to come out of long term source i.e. owned
funds and term borrowings.

The working capital requirement will be as under :

Projected current assets = Rs. 7 crore

Projected current liabilities = Rs. 3 crore

Working capital gap (A) = Rs. 4 crore

25% of (A) as margin (B) = Rs. 1 crore

Maximum Permissible Banking Finance (A-B) = ₹ 3 crore

Question 23 : Dec 23 ( 5 Marks )

Calculation of net amount to be remitted by XYZ Factoring Ltd. to IFK Ltd.

Annual credit sales ₹ 1,00,00,000

Average collection period 60 days

Average receivable (₹1 crore * 60/365) ₹16,43,836

Advanced by factor (80%) of average receivable - A ₹ 13,15,068

Factoring commission 2% of ₹16,43,836 (average receivable) - B ₹ 32,877

Amount available for advance(A-B) ₹ 12,82,191

Factoring interest @ 10% (₹12,82,191 *10%*60/365) -C ₹ 21,077

Amount to be remitted to IFK Ltd. (A-B-C) ₹ 12,61,114

* Amount rounded off to nearest rupee

Question 24 : Dec 2023 ( 3 Marks )

Calculation of Fund based and Non-fund based credit facilities availed by Yamuna Ltd.

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Sr. No. Credit Facilities Provided by Bank Amount (in ₹ Lakhs)

I Fund Based Credit Facilities

Clean Overdraft 9.80

Key Cash Credit 35.50

Car Loan 60.95

Post Shipment Packing Credit 80.40

Total Fund Based Credit Facilities 186.65

II Non Fund Based Credit Facilities

Stand by Letter of Credit 2.50

Bank Guarantee 12.50

Letter of Credit 22.50

Suppliers Credit 30.50

Total Non Fund Based Credit Facilities 68.00

Hence, Yamuna Ltd. has availed ₹186.65 Lakhs fund based facilities and ₹ 68 Lakh Non-Fund-based facilities
from Bank.

Question 25 : June 2024 ( OS ) ( 5 Marks )

1. As per Regulation 2(1)(z)(vv) of SEBI (Issue of Capital and Disclosures) Requirements Regulations,
2018, “retail individual shareholder” means a shareholder who applies or bids for specified securities
for a value of not more than two lakhs rupees. Assuming Romesh as Retail Individual Investor (RII),
he can apply for specified securities for a value of up to ` 2 Lakhs in the category of RII which is ` 1
crore specified securities in the given case.

2. As per Regulation 47 of SEBI (Issue of Capital and Disclosures) Requirements Regulations, 2018 a
person shall not make an application in the net offer category for a number of specified securities
that exceeds the total number of specified securities offered to the public. However, the maximum
application by non-institutional investors shall not exceed total number of specified securities
offered in the issue less total number of specified securities offered in the issue to qualified
institutional buyers.

Accordingly, the maximum number of specified securities which a non-institutional investor can
apply are:

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Securities offered in the issue (A) Rs. ` 10 crore

Less: Securities offered to QIB (B) Rs. ` 6.66 crore

Net available to non-institutional investors (A-B) Rs. ` 3.34 crore

Thus, the total number of specified securities to non-institutional investors shall not exceed ` 3.34
crore.

Question 26 : June 2024 ( OS ) ( 5 Marks each )

SEBI has provided certain clarifications on aspects related to day count convention for debt securities issued
under the SEBI(Issue and Listing of Non-Convertible Securities) Regulations, 2021 (read with the master
circular) as follows:

1. If coupon payment date falls on a holiday, the payment may be made on the following working day.
However, the dates of future coupon payments would be as per the schedule originally stipulated at
the time of issuing the security. In other words, the subsequent coupon schedule would not be
disturbed merely because the payment date in respect of one particular coupon was postponed
earlier because it fell on a holiday.

2. In order to ensure consistency for interest calculation, a uniform methodology shall be followed for
calculating interest payments in case of leap year, which shall be as follows :

During a leap year, the number of days shall be reckoned as 366 for the whole one-year period
irrespective of whether interest is payable annually, half yearly, quarterly or monthly. Hence if the
periodicity is half yearly, 366 days would be reckoned twice as denominator, for quarterly interest,
it would be four times and for monthly interest payment, twelve times.

In the above example, since 2024 is a leap year and as the interest is payable quarterly, 366 would
be reckoned four times as denominator.

Question 27 : June 24 ( OS ) ( 5 Marks )

Invoice Amount = Rs. ` 2 Crore

Amount that can be received from Blue Ltd. as advance

= 80% of ` 2 Crore

= Rs. ` 1.6 Crore

Quoted discount rate : 2% flat discount Rate for the first 30 days and at 3% flat discount rate for next 30 days
afterwards (Assuming factoring is allowed @ 3% discount for next 30 days)

The fee on Rs. ` 2 Crore invoice if it is paid in 60 days would be :

First 30 days = Rs. 2 crore * 2% = Rs. 4 Lakh

The next 30 days = Rs. 2 Crore * 3% = 6 Lakh

Total factoring cost / fee for DAL Ltd. = Rs. ` 10 lakh

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Question 28 : June 2024 ( OS ) ( 5 Marks )

Assessment of Limit of Bank Guarantee: -

Outstanding Bank Guarantee as per Audited Balance Sheet of March 31, 2023 Rs.` 325 Lakh

Add: Bank Guarantee availed during the year 2023-24 Rs.` 125 Lakh

Add: Additional Bank Guarantee required for December 2023 Rs. ` 750 Lakh

Total Rs. ` 1200 Lakh

Less: Bank Guarantee Matured by December 2023 Rs. ` 250 Lakh

Bank guarantee available Rs.` 950 Lakh

Less: Bank Guarantee cancelled by December 2023 Rs. 120 Lakh

Requirement of Bank Guarantee by December 2023 Rs. 830 Lakh

Hence, in the given circumstances the requirement of Bank Guarantee by SCL Ltd. is ` 830 Lakh which is within
the sanctioned Bank Guarantee ` 850 lakh. As a result, there is no necessity to increase the Bank Guarantee
limit.

Question 29 : June 2024 ( NS ) ( 5 Marks each )

(a) Where all Green Shoe Shares are bought back :

In this situation, funds in the Green Shoe Escrow Account (30,000 shares x `100 i.e ` 30,00,000) would
be deployed by the stabilising agent towards buying up shares from the open market. Given that the
prices prevalent in the market would be less than the issue price of ` 100, the stabilising agent would
have sufficient funds lying at his disposal to complete this operation.

Having bought back all of the 30,000 shares, these shares would be temporarily held in a special
depository account with the depository participant (Green Shoe Demat Account), and would then be
returned to the lender shareholders, within a maximum period of two days after the stabilisation
period.

(b) Where none of the Green Shoe Shares are bought back :

This situation would arise in the event that the share prices have fallen below the Issue Price, but the
stabilising agent is unable to find any sellers in the open market, or in an event where the share prices
continue to trade above the listing price, and therefore there is no need for the stabilising agent to
indulge in price stabilisation activities.

In either of the above-said situations, the stabilising agent is under a contractual obligation to return
the 30,000 shares that had initially been borrowed from the lending shareholder(s). Towards meeting
this obligation, the issuer company would allot 30,000 shares to the stabilising agent into the Green
Shoe Demat Account (the consideration being the funds lying the Green Shoe Escrow Account), and
these shares would then be returned by the stabilising agent to the lending shareholder(s), thereby
squaring off.

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(c) Where some of the Green Shoe Shares are bought back, say 20,000 shares :

This situation could arise in an event where the share prices witness a drop in the initial stages of the
price stabilization period, but recover towards the later stages, generally after such purchase.

In this situation, the stabilising agent has a responsibility to return 30,000 shares to the lending
shareholder(s), whereas the stabilising activities have yielded only 20,000 shares.

Similar to the instance mentioned in Situation (b) above, the issuer company would allot the
differential 10,000 shares into the Green Shoe Demat Account to cover up the shortfall, and the
stabilising agent would discharge his obligation to the lending shareholder(s) by returning the 30,000
shares that had been borrowed from them.

In both Situation (b) and (c), the issuer company would need to apply to the exchanges for obtaining listing/
trading permissions for the incremental shares allotted by them, pursuant to the Green Shoe mechanism.

Any surplus lying in the Green Shoe Escrow Account would then be transferred to the Investor Protection
and Education Fund established by SEBI, as required under ICDR Regulations and the account shall be closed
thereafter.

Question 30 : June 2024 ( NS ) ( 5 Marks each )

(a) Current Assets = Raw Material + W.I.P + Finished Goods + Debtors + Cash/Bank

Current Assets = Rs.` 150 Lakh + Rs.` 100 Lakh + Rs.` 50 Lakh + Rs.` 125 Lakh + Rs` 55 Lakh

= Rs. 480 lakh

Current Liabilities = Public Deposits (Short-term) + Trade Creditors + Bills Payable

= Rs. ` 100 Lakh + Rs. ` 80 Lakh + Rs` 100 Lakh = Rs. ` 280 lakh

Maximum Permissible Banks Finance under Tandon Committee Norms

Method I

Maximum Permissible Bank Finance = 75% of (Current Assets – Current Liabilities other than bank

Borrowings )

= 75% of (` 480 Lakh – ` 280 Lakh)

= Rs. ` 150 lakh

Method II

Maximum Permissible Bank Finance = (75% of Current Assets) – Current Liabilities

= (75 % of ` 480 Lakh) – ` 280 Lakh

= Rs. 80 Lakh

Method Ill

Maximum Permissible Bank Finance = 75% of (Current Assets – Core Current Assets) – Current

Liabilities )

= 75 % of (` 480 Lakh – ` 30 Lakh) – ` 280 Lakh

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Answer 30 (b) :

(i) Calculation of Net Operating Cycle period of Ganpati Ltd.

Raw Material storage period (R) = Average stock of raw material

COGS

= Rs. 50,000
* 360
Rs. 6,00,000

= 30 days

WIP inventory holding period (W) = Average WIP inventory

COGS
= Rs. 30,000
* 360
Rs. 5,00,000

= 21.60 OR 22 days

Finished Goods inventory holding period (F) = Average stock of Finished Goods

COGS

= Rs. 40,000
* 360
Rs.` 8,00,000

= 18 days

Receivables (Debtors) collection period (D) = 45 days

Credit Period allowed by creditors (C) = 30 days

Net Operating Cycle = R + W + F+ D – C

= 30 + 22 + 18 + 45 – 30

= 85 days

(ii) Number of operating cycles in a year = Number of days in a year

Operating cycle period

= 360/85 days

= 4.23 times

Answer 30 ( c) :

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Galaxy Ltd.

( Amount in Crore )

Annual Raw Material Consumption for FY 2024-25 A Rs 480

Estimated purchase under Letter of Credit (LC) for FY B Rs 432

2024-25 (90 %)

Calculation Calculation of
of Inland Foreign Letter of
Letter of Credit (FLC)
Credit (ILC)

Annual Raw Material Procurement through ILC/FLC C Rs. ` 302.40 Rs. 129.60

Monthly Consumption (C/12) D Rs. ` 25.20 Rs. 10.80

Lead Time (Time from order placement to shipment) E 1.5 months 2.5 months

Transit Time F 1.5 months 2.5 months

Credit (Usance) Period Available G 2 months 5 months

Total Period H=E+F+ 5 months 10 months

G

LC limit Required for FY 2024-25 I=DxH Rs. ` 126 Rs. 108

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