MANAGEMENT

Detailed explanation-1: -*** The Chore committee which was appointed in April 1979 suggested that all borrowers apart from sick units which have working capital of Rs.50 lakhs and over from the bank system should be positioned under method-II which will give a current ratio of 1.33:1.

Detailed explanation-2: -Current Ratio in the second method: Since Total Current Liabilities would be (200 + 550) =750 against Total Current Assets of Rs. 1000, the minimum Current Ratio under method–II would be 1.33:1.

Detailed explanation-3: -80 against Total Current Assets of Rs. 100, the minimum Current Ratio under method–I would be 100:80 i.e minimum Current Ratio is 1.25:1. Tandon’s-II method (also called as ‘second method’): In this method of lending the borrower has to arrange 25% of Total Current Assets (TCA) as margin.

Detailed explanation-4: -Second Method: MPBF = (75% of Current assets) – (Current liabilities other than bank borrowings) ADVERTISEMENTS: The borrowing firm should raise finance to the extent of 25% of current assets from long-term sources. The minimum current ratio under this method works out to 1.33: 1.

Detailed explanation-5: -Third method In this method the borrower should contribute from long-term sources to the extent of core current assets (Fixed Current assets) and 25% of the balance of the current assets. The remaining of the working capital gap can be met from bank borrowings. This method will further strengthen the current ratio.