Financial ManagementQuestion 5526 of 217
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4. What will be the total estimated current liabilities?

Options

A` 2,52,500
B` 1,90,000
C` 2,17,500
D` 2,25,000 (2 Marks)
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Correct Answer

✅ Option D — ` 2,25,000 (2 Marks)

All Options:

  • A` 2,52,500
  • B` 1,90,000
  • C` 2,17,500
  • D` 2,25,000 (2 Marks) ✓

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Detailed Solution & Explanation

To find the total estimated current liabilities, we identify and calculate all credit periods and outstanding cash payments:

**1. Creditors for Raw Material:**
The company gets a credit period of 2 months on its raw material consumption (annual consumption is ` 7,50,000 from Question 1):
Creditors=‘7,50,000×212=‘1,25,000\text{Creditors} = ` 7,50,000 \times \frac{2}{12} = ` 1,25,000

**2. Outstanding Wages:**
Wages are paid with a 1/2 month's lag (annual wages are 20% of ` 30,00,000 sales = ` 6,00,000):
Outstanding Wages=‘6,00,000×0.512=‘25,000\text{Outstanding Wages} = ` 6,00,000 \times \frac{0.5}{12} = ` 25,000

**3. Outstanding Cash Manufacturing Overheads:**
Outstanding overhead expenses at the end of the year are given directly as:
Outstanding Overheads=‘60,000\text{Outstanding Overheads} = ` 60,000

**4. Outstanding Administrative Cost:**
Estimated total administrative cost is ` 1,80,000, and it is paid with a one-month lag (arrear):
Outstanding Administrative Cost=‘1,80,000×112=‘15,000\text{Outstanding Administrative Cost} = ` 1,80,000 \times \frac{1}{12} = ` 15,000

**5. Total Estimated Current Liabilities:**
Total Current Liabilities=Creditors+Outstanding Wages+Outstanding Overheads+Outstanding Administrative Cost\text{Total Current Liabilities} = \text{Creditors} + \text{Outstanding Wages} + \text{Outstanding Overheads} + \text{Outstanding Administrative Cost}
Total Current Liabilities=‘1,25,000+‘25,000+‘60,000+‘15,000=‘2,25,000\text{Total Current Liabilities} = ` 1,25,000 + ` 25,000 + ` 60,000 + ` 15,000 = ` 2,25,000

Hence, **Option D** is the correct answer.

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