📢 Too many exams? Don’t know which one suits you best? Book Your Free Expert 👉 call Now!

    Question

    Which of the following best describes “Drawing Power

    (DP)” in the context of a Cash Credit facility given by a bank?
    A The total credit limit sanctioned by the bank to the borrower for meeting working capital requirements Correct Answer Incorrect Answer
    B The total amount of money a borrower can withdraw from the bank, across all accounts maintained with the bank Correct Answer Incorrect Answer
    C The value of assets pledged by the borrower to secure the loan, adjusted for repayments Correct Answer Incorrect Answer
    D The amount that a borrower can withdraw from the sanctioned credit limit based on the latest stock and receivables statement Correct Answer Incorrect Answer
    E The change in the repayment schedule based on the inventory and sales position of the company on a quarterly basis Correct Answer Incorrect Answer

    Solution

    • Drawing Power (DP) refers to the maximum amount a borrower can actually withdraw from the sanctioned Cash Credit (CC) limit. • It is calculated on the basis of the latest stock and receivables statement submitted by the borrower, after applying the margin requirements of the bank. • For example, if a borrower has a sanctioned CC limit of ₹1 crore but the DP calculated from stocks and receivables is ₹70 lakh, then only ₹70 lakh can be drawn, not the entire limit. • This ensures that withdrawals remain linked to actual working capital needs and adequately secured. Thus, Drawing Power = Sanctioned Limit subject to availability of drawing based on stock/receivables position.

    Practice Next
    More Accounts Questions

    Relevant for Exams:

    ask-question