Module: General Practice
Q49: Scenario: A company has Total Current Assets (CA) of ₹1000 Lakh and Other Current Liabilities (excluding bank borrowing) of ₹400 Lakh.
Question: Calculate the Maximum Permissible Bank Finance (MPBF) under Tandon Committee Method II.
✅ Correct Answer: A
Method II is more conservative than Method I. It requires the borrower to fund 25% of the Total Current Assets from long-term sources (equity). The formula is: MPBF = (Total Current Assets multiplied by 0.75) minus Other Current Liabilities.
Step 1: 75% of Total CA = 1000 × 0.75 = 750.
Step 2: Subtract Other CL = 750 - 400 = 350.
The MPBF is ₹350 Lakh.
For comparison, under Method I, the MPBF would be (1000 - 400) × 0.75 = 450.
Step 1: 75% of Total CA = 1000 × 0.75 = 750.
Step 2: Subtract Other CL = 750 - 400 = 350.
The MPBF is ₹350 Lakh.
For comparison, under Method I, the MPBF would be (1000 - 400) × 0.75 = 450.