Estimation of Working Capital 293- Installments of deferred receivables due within 1 year.
- Raw materials and components used in the process of manufacture including those in transit (see Note 4).
- Stocks in process including semi-finished goods.
- Finished goods including goods in transit.
- Other consumable spares (see Note 4 and Note 11).
- Advance payment for tax.
- Pre-paid expenses.
- Advances for purchase of raw materials, components, and consumable stores.
- Monies receivable from contracted sale of fixed assets during the next 12 months.
Notes
- The concept of current liabilities would include estimated or accrued amounts which are anticipated to
cover expenditure within the year for unknown obligations, viz., taxes, accrued bonus payments,
provisions, etc. - In cases where specific provisions have not been made for these liabilities and will be eventually paid
out of general reserves, estimated amounts should be shown as current liabilities. - Investments in shares and advance to other firms/companies, not connected with the business of the
borrowing firm should be excluded from current assets. - Slow moving or obsolete items should not be classified as current assets.
- Amounts representing inter-connected company transactions should be treated as current only after
examining the nature of transactions and merits of the case. For example, advance paid for suppliers for
a period more than the normal trade practice, regardless of any other consideration such as regular and
assured supply should not be considered as current. - Advance payments from customers are to be classified as current liabilities where deposits are required.
- These deposits may be treated as term liabilities irrespective of their tenure if such deposits are accepted
to be repayable only when the dealership/agency is terminated after due verification by banks. Deposits
which do not satisfy the above condition should continue to be classified as current liabilities. Security
deposits/tender deposits may be classified as non-current assets irrespective of whether they are classified
as non-current assets or whether they mature within the normal operating cycle of one year. - Netting of tax provision and advance tax paid may be effected for all the years uniformly and as such
for the current year also the advance tax paid can be set off against the provision, if any, made for that
year. - Disputed excise liabilities shown as a contingent liability or by way of note to the balance sheet need not
be treated as a current liability for calculating the permissible bank balance unless it has been collected
or provided for in the accounts of the borrower.
Provision for disputed excise duty is invested separately, say in fixed deposits with banks, such
provision may be set off against the relative investment. - Export receivables may be included in the total current assets for arriving at the Maximum Permissible
Bank Finance but the minimum stipulated net working capital may be reckoned after excluding the
quantum of export receivables from the total current assets. - Projected levels of spares on the basis of past experience but not exceeding 12 months’ consumption
for imported items and 9 months’ consumption for indigenous items may be treated as current assets for
the purpose of assessment of working capital requirements.