Page 324 - CA Inter Audit PARAM

CA Ravi Taori
(iv) Stock audit
Answer  Computation of Drawing Power:
(i) Bank’s Duties: Banks should ensure that drawings in the working capital account are
covered by the adequacy of the current assets. Drawing power is required to be arrived at
based on current stock statement. However, considering the difficulties of large
borrowers, stock statements relied upon by the banks for determining drawing power
should not be older than three months. The outstanding in the account based on drawing
power calculated from stock statements older than three months is deemed as irregular.

(ii) Auditor’s Concern: The stock statements, quarterly returns and other statements
submitted by the borrower to the bank should be scrutinized in detail. The audited Annual
Report submitted by the borrower should be scrutinized properly. The monthly stock
statement of the month for which the audited accounts are prepared and submitted
should be compared and the reasons for deviations, if any, should be ascertained.

(iii) Computation of DP: It needs to be ensured that the drawing power is calculated as per
the extant guidelines formulated by the Board of Directors of the respective bank and
agreed upon by the concerned statutory auditors. Special consideration should be given
to proper reporting of sundry creditors for the purposes of calculating drawing power.

(iv) Stock Audit: The stock audit should be carried out by the bank for all accounts having
funded exposure of more than 15 crores. Auditors can also advise for stock audit in other
cases if the situation warrants the same. Branches should obtain the stock audit reports
from lead bank in the cases where the Bank is not leader of the consortium of working
capital. The report submitted by the stock auditors should be reviewed during the course
of the audit and special focus should be given to the comments made by the stock auditors
on valuation of security and calculation of drawing power.

QNO— Drawing Power Calculation New Course – (SM25/S24R)
BA.09.75 Bhaskar CNO - BA.280
CA P is conducting stock audit of a borrower availing cash credit facility of ₹ 100 lacs from branch of a
bank. The cash credit facility is against security of paid stocks and debtors up to 90 days. Margin
stipulated is 25% for stocks and 40% for debtors. Following further information is available as on
31.12.22: -

Value of stocks ₹ 125 lacs
Value of stocks (fully damaged) included in above 5 lacs
Value of debtors 50 lacs
Value of debtors exceeding 90 days included in above 10 lacs
Value of creditors for goods 50 lacs

Is Drawing Power computed by CA P for ₹ 82.50 lacs proper?
Answer The computation of Drawing power is as under: -
Value of stocks as on 31.12.22 ₹ 125 lacs
Less: value of damaged stocks ₹ 5 lacs
₹120 lacs
Less: creditors for goods as on 31.12.22 ₹ 50 lacs
Value of Paid stocks ₹ 70.00 lacs
Less: Margin @ 25% ₹ 17.50 lacs
Drawing power (A) ₹ 52.50 lacs
Value of debtors as on 31.12.22 ₹ 50 lacs
Less: debtors exceeding 90 days ₹ 10 lacs
₹ 40 lacs

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