Case Study of Letter of Credit A company has requested for Inland / Import Letter of Credit (DP / DA -60- days)

limit of s!"#0 lacs and furnished follo$in% additional information & "! Purhcase s!"'00 lacs for full year! (ut of $hich s!)00 lacs cash purchases from domestic mar*et+ s!600 lacs imported ra$ material a%ainst L/C (DP/DA)+ inland ra$ material of s!)00 lacs a%ainst L/C (DP/DA)! (,erseas supplier a%reed to e-tend credit period of -60- days and $ill dispatch the %oods on 'nd h day on receipt of L/C+ .oya%e time -#- days and custom clearance -'- days and local transportation -"- days! Domestic supplier a%reed to e-tend credit period of -)0- days and $ill dispatch the %oods on 'nd day on receipt of L/C!

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Please furnish follo$in% & Import L/C limit! Inland L/C limit! /otal com0ined L/C limit 1o$ much amount of sundry creditors le,el required to 0e estimated in C2A data! 1o$ much num0er of days of holdin% le,el of sundry creditors required to 0e estimated in C2A data! 2ar%in stipulation is '#3! 1o$ much mar%in required to 0e estimated in C2A data!

Note : Consider -360- days for -1- year for the calculation purpose

Calculation of L/C Limit Cash 4asis Purchase ( ! Lead time and effecti#e credit period Limit Purchase 5 Lead time )60 days Calculation of 300 Imported a$ material 600 60 600 5 60 )60 $ 100 ( s! in lacs) Inland a$ material 300 30 )00 5 )0 )60 $ "% 1"00

1"%

#era&e holdin& period

(1! 600 5 60 6 )6000 )00 5 )0 6 7000 ----------700 8#000 ("!

8#000 700

6 %0 days holdin&s s! "'00 lacs s! )00 lacs 's( )00 lacs

/otal purchase Less & Cash Purchase Credit purchase

2inimum 9undry Creditors requirement 5 )60 6 "'# 5 )60 Credit purchase 700 6 %0 days *ar&in re+uirement to estimated in C* '# 3 on s!"'# lacs 6 s! )"!'# lacs ssets

&ainst ,-' .ith /an0 under head of Current