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There is no repayement of OD/CC
Only interest amount to be repaid
Overdraft/Cash Credit is a kind of Negative Bank Account.
Suppose Bank sanction such limit for OD/CC of 50 lacs,it means a person can have negative balance of maximum 50 lacs in bank account Interest is charged only on amount withdrawn and not whole 50 lacs
Difference between OD AND CC
| Overdraft (OD) | Cash Credit (CC) |
| It is normally given on security of Debtors or property | It is given on security of stock |
| hence, it is given in case of those business where debtors are more than stock | Hence, it is given in case of those business where stock is more than debtors |
| For CA profession,there are more Debtors and no stock | For Manufacturing Business,a lot of stock is required to be kept |
| hence they take OD Limit | Hence,they take CC Limit |
Example 1(a):-
Suppose
a person applies for OD/CC limit of 10 lacs on 18 June 2016 Bank Charges 2% processing charges and sanction him OD/CC limit on 10 July 2016 @ Base Rate +3 % What is the interest to be booked for 2016-17 and 2017-18 if Base Rate of Bank is 8.5%
Interest will be charged on whole 10 lacs
Interest Rate=8.5%+3%=11.5%
| Interest Computation | ||
| Particulars | 2016-17 | 2017-18 |
| Limit Amount | 1000000 | 1000000 |
| Interest From | 18-06-16 | 01-04-17 |
| Interest to | 31-03-17 | 31-03-18 |
| No of Days | 286 | 364 |
| Interest Rate | 11.50% | 11.50% |
| Interest Amount | 90110 | 114685 |
Example 1(b):-
Suppose limit enhanced on 18 Aug 2018 t0 15 lacs
-a-
