Cr. 20,00.000 By cost of goods sold 8.75,000 Dr. To Materials (25,00,000 x 35%) To Wages (25,00.000 x 25%) x To Overheads (25,00.000 x 20%) x 6,25,000 5,00.000 20,00,000 20,00,000 By Sales 5,00,000 25,00,000 20,00.000 25,00.000 To Cost of goods sold To Gross profit 25.00.000 To Interest on debentures To Net profit 5,00,000 30,000 By Gross profit 4.70.000 5,00,000 5,00.000 t13 Forecast Balance Sheet Liabilities Rs. Assets Rs. Share capital 12.00.000 Fixed Assets 11,00.000 Net profit 4,70,000 Stock 10% debentures 3,00.000 Raw material 72.917 Credits 1.45,833 Work-in-process 38,458 Finished goods 1,66,667 Debtors 5,00.000 Cash and Bank Balance 2.37.791 21.15.833 21,15,833 Exercise 8 8 Selva and Co. desires to purchase a business and has consulted you and one point on which you are to advise them is the average amount of working capital which will be required in the first year's working. You have given the following estimates and instructed to add 10% to your computed figure to allow for contingencies. (i) Amount blocked up for stocks: Figures for the year Stocks of finished product 3,000 Stocks of stores, materials, etc., 5,000 (ii) Average credit given: Inland sales 4 weeks credit 26,000 Export sales-14 weeks credit 65,000 iii) Lag in payment of wages and other outputs Wages-11 weeks 2,40,000 Stocks of materials, etc. -14 month 36,000 Rent, Royalties, etc.-4 months 8,000 Clerical staff-14 month 60,000 Manager-month 4,000 Miscellaneous expenses-11 month 36,000 (iv) Payment in advance Sundry Expenses (paid quarterly in advance) 6,000 (v) Undrawn profit on the average throughout the year 9,000