Fair Ltd. has been sanctioned a Cash Credit facility of 1.50 crores by Worthy Bank. Based on the monthly stock statements submitted for the last…

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'. Applying the above to the given case of Fair Ltd, its Drawing power is 1.45 crores, although outstanding balance in the account is 1.40 crores, but still the account would be reported as out of order because credits in the account are not sufficient to cover the interest debited during the same period Therefore, classification of account made by the bank for the account as 'out of order' is in order.