Module: General Practice
Q123: Scenario: A borrower has the following stock position: Total Stock Value: ₹100 Lakhs Sundry Creditors (unpaid stock): ₹20 Lakhs Bank Margin stipulated: 25% Calculate the Drawing Power (DP) available to the borrower.
✅ Correct Answer: A
Concept: Drawing Power (DP) is calculated only on the Paid-up value of stock.
Bank funds should not be used to finance stock that is already financed by creditors (suppliers). Calculation Step-by-Step: 1. Calculate Paid-Up Stock: Total Stock - Sundry Creditors = Paid-Up Stock.
100 - 20 = ₹80 Lakhs.
2. Deduct Margin: The bank lends against the Paid-Up Stock less the margin.
Margin = 25% of 80 = ₹20 Lakhs.
3. Final Drawing Power: DP = Paid-Up Stock - Margin.
80 - 20 = ₹60 Lakhs. (Alternatively: DP = 75% of Paid-Up Stock = 0.75 * 80 = 60)
Bank funds should not be used to finance stock that is already financed by creditors (suppliers). Calculation Step-by-Step: 1. Calculate Paid-Up Stock: Total Stock - Sundry Creditors = Paid-Up Stock.
100 - 20 = ₹80 Lakhs.
2. Deduct Margin: The bank lends against the Paid-Up Stock less the margin.
Margin = 25% of 80 = ₹20 Lakhs.
3. Final Drawing Power: DP = Paid-Up Stock - Margin.
80 - 20 = ₹60 Lakhs. (Alternatively: DP = 75% of Paid-Up Stock = 0.75 * 80 = 60)