CA Inter P5 · Chapter 10 · Question 6 of 11
A borrower's cash credit account has a sanctioned limit of Rs. 50 lakh. The latest stock statement shows stock of Rs. 80 lakh and unpaid creditors for goods of Rs. 20 lakh. The margin stipulated is 25%. What is the drawing power?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Rs. 45 lakh
Explanation
Paid stock = Rs. 80 lakh - Rs. 20 lakh = Rs. 60 lakh. Drawing power = 60 x (1 - 25%) = Rs. 45 lakh. Since this is below the sanctioned limit of Rs. 50 lakh, the borrower can draw only up to Rs. 45 lakh. Rs. 60 lakh ignores the margin, and Rs. 40 lakh wrongly applies the margin to gross stock before deducting creditors (80 x 75% - 20).
More Audit of Banks MCQs
- Q8To verify balances held by a bank with other banks, the bank auditor should primarily:
- Q9The forms of balance sheet and profit and loss account of a banking company are prescribed in:
- Q10Just before the year-end, a bank sanctioned a fresh loan to a borrower whose existing account was overdue for more than 90 days, and used…
- Q11The central statutory auditor of a bank receives reports from the auditors of many branches. When using the work of branch auditors, the…
- Q1The statutory auditor of a banking company is appointed in accordance with: