K Ltd. is availing cash credit limit of 25 crores from LMN Bank Ltd. The drawing power of the company range between 22 crores and 25 crores during…

An account should be treated as 'out of order' if: - the outstanding balance remains continuously in excess of the sanctioned limit/drawing power orIn cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet; orcredits are there but are not enough to cover the interest debited during the same period, these accounts should be treated as 'out of order'. In the given case, K Ltd. is availing cash credit limit of 25crores from LMN Bank Ltd and the drawing power of the company range between 22crores and 25crores during the year 2023-24. The limit availed by K Ltd. remained less than 20crores during all the days of the financial year 2023-24 and the company has not deposited any amount in the cash credit account and there are no other credits to this account during the last two quarters. Thus, account should be treated as out of order in the books of LMN Bank Ltd. as the outstanding balance in the principal operating account (20crore) is less than the sanctioned limit/drawing power (22cores and 25crores), but there are no credits continuously for 90 days as on the date of Balance Sheet.