## Drawing Power (DP) for Cash Credit (CC) Accounts

Drawing Power is the maximum amount a borrower may draw from a Cash Credit account at any point, calculated from the value of current assets hypothecated as security.

### Components and Adjustments

Component	Adjustment
Stock	Deduct creditors for unpaid stocks (goods not yet paid for), then apply margin %
Debtors	Remove ineligible debtors (e.g., >3 months old, disputed), then apply margin %
Margin	Deducted as a % specified by the bank — reduces the advance value of each asset

### Step-by-Step Process

Step 1 — Stocks:

1. Start with stock at cost/realizable value (lower)

2. Deduct sundry creditors (unpaid stocks)

3. Deduct margin % → DP from stocks

Step 2 — Debtors:

1. Start with total debtors

2. Remove ineligible debtors

3. Deduct margin % → DP from debtors

Step 3: Total DP = DP from Stocks + DP from Debtors

> The effective drawing limit is the lower of total DP and the sanctioned limit.

Worked example

### Example 1

Kirpa Ltd. — CC Account DP Computation

Given:

Stock: ₹60,000 | Margin on stock: 30%
Debtors: ₹55,000 (includes ₹15,000 invoice dated 20.10.2023, i.e., >3 months old — ineligible) | Margin on debtors: 40%
Sundry Creditors (for stock): ₹10,000
Sanctioned Limit: ₹48,000

Particulars	Sub-amount (₹)	DP Amount (₹)
Stocks
Stock at realizable value	60,000
Less: Sundry creditors (unpaid stocks)	(10,000)
Paid-for stocks	50,000
Less: Margin @ 30%	(15,000)	35,000
Debtors
Total Debtors	55,000
Less: Ineligible debtors (>3 months)	(15,000)
Eligible Debtors	40,000
Less: Margin @ 40%	(16,000)	24,000
Total Drawing Power		59,000

Since Total DP (₹59,000) > Sanctioned Limit (₹48,000), the effective limit available for drawing is ₹48,000.

⚠️ Common exam mistakes

Forgetting to deduct sundry creditors (unpaid stock) before applying the margin on stocks — margin must be on paid-for stock only
Including ineligible debtors (older than stipulated age, e.g., >3 months) in the DP base
Applying margin on gross debtors before removing ineligible ones — always remove ineligible amounts first
Treating total DP as the drawing limit without comparing it with the sanctioned limit — effective limit is the lower of the two

Reference:

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Drawing Power Calculation for Cash Credit Accounts

Worked example

⚠️ Common exam mistakes