Management of Working Capital

Original descriptive practice: 30 saved, 1 at 3 marks, 24 at 5 and 5 at 10. Gross/net/permanent/temporary capital, cycles and funding estimates, cash budgets/float/Baumol/Miller-Orr, supplied inventory formulas, credit policy/factoring, trade discounts and financing. Original practice, not ICAI questions or official marking schemes. Native tables scroll on phones. Original preparation is not a live or complete official question bank.

Boundaries: Net working-capital sign does not guarantee payment capacity. Ledger receivables and cash-cost funding bases differ. Factoring recourse/derecognition, CP rules, accrued-dues costs and bank availability need actual terms/current rules. Unit III inventory refers to Costing Material Cost; detailed inventory primary coverage is held and formulas are case supplied. Unit V discounted-payment wording is corrected explicitly.

FM-C09-D001 · 5 marks

Totals are Rs lakh unless another unit is specified. Inventory 30, receivables 40, cash 5, current liabilities 60. Calculate gross/net WC and assess whether positive NWC guarantees payment of imminent debts. (5 marks)

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Marks	Credit	Working / case application
1	Gross	CA 75.
1	Net	75-60=15.
1	Quality	Inventory/receivables not necessarily liquid at book value.
1	Dates	Only 5 cash known; maturity/collection dates needed.
1	Limit	NWC sign indicates position, not universal payment ability/inability.

Original indicative capped marking, not official scheme. Equivalent correct work credited without duplication. State sales/cost bases, dates, days/year and model/contract assumptions. No financing/payment action or current regulatory assurance.

Official concept source, PDF page 5

FM-C09-D002 · 3 marks

Totals are Rs lakh unless another unit is specified. Minimum operating CA 20, seasonal peak 35. Classify permanent/temporary components and distinguish asset versus funding policy. (3 marks)

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Marks	Credit	Working / case application
1	Base	Permanent 20.
1	Peak	Temporary 15.
1	Policy	Asset level differs financing maturity; available long/short funding not proved.

Official concept source, PDF page 5

FM-C09-D003 · 5 marks

Totals are Rs lakh unless another unit is specified. RM 30 days, WIP 10, FG 20, receivables 40, payables 25; 360 days/year. Compute gross/net cycle, net cycles/year and negative-cycle limits. (5 marks)

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Marks	Credit	Working / case application
1	Gross	100 days.
1	Net	75 days.
1	Cycles	360/75=4.8 net cash cycles.
1	Basis	Gross inventory+collection versus net less supplier period.
1	Limit	Negative net cycle possible, not permission for overdue payment or risk-free finance.

Official concept source, PDF page 18

FM-C09-D004 · 5 marks

Totals are Rs lakh unless another unit is specified. 360 year; average RM 12/annual consumption 144; WIP 6/production 216; FG 9/COGS 216; debtors 20/credit sales 240; payables 10/credit purchases 120. Compute days/net cycle. (5 marks)

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Marks	Credit	Working / case application
1	RM	30 days.
1	WIP	10 days.
1	FG	15 days.
1	Debtors	30 days using sales-valued ledger balance.
1	Payables/net	30 days; net 55 days. Match stock to consumption/production/COGS/sales/purchases.

Official concept source, PDF page 20

FM-C09-D005 · 10 marks

Totals are Rs lakh unless another unit is specified. Annual 100000 units, cash cost/unit RM 40, wages 20, OH 10, dep 5, selling price Rs 100 per unit, all sales credit. Use a 360-day year; RM 30, WIP 18, FG 12, debtors 36, supplier 24 days; WIP 100% RM/50% wages OH, wages lag 9/OH 18 days, min cash 2. Calculate cash-cost CA/CL/net and 10% net contingency. (10 marks)

Case cash cost bases and 360-day year.

Component	Annual cash Rs lakh	Days
RM	40	30
WIP	55	18
FG	70	12
Debtors	70	36
Supplier	40	24

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Marks	Credit	Working / case application
1	RM	40 x 30/360=3.333333.
1	WIP	Unit 40+10+5=55; annual 55 x 18/360=2.75.
1	FG	70 x 12/360=2.333333.
1	Debtors	Cash cost 70 x 36/360=7, not ledger sales value.
1	CA	Add cash 2, total 17.416667.
1	Supplier	40 x 24/360=2.666667.
1	Wages	20 x 9/360=.5.
1	OH/CL	10 x 18/360=.5, total 3.666667.
1	Net	13.75.
1	Buffer	1.375; required 15.125. Profit/depreciation not cash-funding base.

Official concept source, PDF page 23

FM-C09-D006 · 5 marks

Totals are Rs lakh unless another unit is specified. 120000 units/year, materials 30, wages 20, cash OH 10 rupees/unit, WIP 15 days, 360 year, 100% RM/40% wages OH. Calculate WIP cost/unit, units, value, full-completion error and limit. (5 marks)

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Marks	Credit	Working / case application
1	Unit	30+8+4=42 rupees.
1	Units	5000.
1	Value	210000 rupees=2.1 lakh.
1	Error	Full 60 gives 3 lakh, overstates.9.
1	Basis	Completion explicit; cash cost excludes depreciation, not sales value.

Official concept source, PDF page 23

FM-C09-D007 · 5 marks

Totals are Rs lakh unless another unit is specified. Annual credit sales 240, variable cash cost 60%, 30 day collection, 360 year, carrying rate 12%. Compute recorded debtors, cost funding, charge, alternative sales-base charge and scope. (5 marks)

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Marks	Credit	Working / case application
1	Ledger	20.
1	Cost	144 x 30/360=12.
1	Charge	1.44 annual.
1	Sales charge	20 x.12=2.4 not stipulated cost basis.
1	Scope	Name variable/total/incremental cost basis; fixed cash costs not silently assumed.

Official concept source, PDF page 5

FM-C09-D008 · 5 marks

Totals are Rs lakh unless another unit is specified. Profit before finance 20, fixed assets 100; CA 80 conservative/60 moderate/40 aggressive. Same sales/profit stipulated; ignore tax/finance. Compute asset return and contextual risks. (5 marks)

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Marks	Credit	Working / case application
1	Conservative	20/180=11.1111%.
1	Moderate	12.5%.
1	Aggressive	14.2857%.
1	Ranking	Aggressive highest calculated return only because same profit assumed.
1	Risk	Low buffers can cause stockouts/payment risk; high stocks/credit carry obsolescence/bad debts/opportunity cost. No universal best.

Official concept source, PDF page 15

FM-C09-D009 · 5 marks

Totals are Rs lakh unless another unit is specified. Permanent need 40, seasonal 20 for 3 months; long 10%, short 8%. Compare matching long 40/seasonal short 20 with conservative long 60. Annual costs, surplus and risks. (5 marks)

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Marks	Credit	Working / case application
1	Matching	4+.4=4.4 annual.
1	Conservative	6 gross annual.
1	Surplus	20 idle 9 months, average 15; investment return not supplied.
1	Roll over	Matching has seasonal refinancing; conservative still has covenants/term risk.
1	Limit	No actual available financing or guarantee assumed.

Official concept source, PDF page 1

FM-C09-D010 · 10 marks

Totals are Rs lakh unless another unit is specified. Sales Jan 100/Feb 120/Mar 80; 20% cash/80% one-month credit; Dec credit 64 received Jan. Purchases Jan 60/Feb 70/Mar 50 one-month lag, Dec payable 40. Wages 10/month, Feb capex 30, opening cash 20, min 10, loan 0; no other flows/interest. Budget each month and borrowing need. (10 marks)

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Marks	Credit	Working / case application
1	Jan receipts	20+64=84.
1	Jan payments	40+10=50.
1	Jan close	54, no loan.
1	Feb receipts	24+80=104.
1	Feb payments	60+10+30=100.
1	Feb close	58, no loan.
1	Mar receipts	16+96=112.
1	Mar payments	70+10=80.
1	Mar close	90, no loan.
1	Timing	March credit 64 and March purchase 50 occur Apr, not Mar; cash minimum met.

Official concept source, PDF page 6

FM-C09-D011 · 5 marks

Totals are Rs lakh unless another unit is specified. Opening cash 12, min 5; month 1 receipts 20/payments 35, month 2 receipts 40/payments 20. Case interest free revolver available; borrow to minimum then repay surplus. Calculate balances. (5 marks)

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Marks	Credit	Working / case application
1	Month 1	Pre-finance-3.
1	Borrow	8, closing cash 5/loan 8.
1	Month 2	Pre-finance 25.
1	Repay	8, closing cash 17/loan 0.
1	Limit	Hypothetical availability/zero cost, not actual borrowing authority.

Official concept source, PDF page 5

FM-C09-D012 · 5 marks

Totals are Rs lakh unless another unit is specified. Daily collections Rs 200000, process shortens clearing 2 days, annual rate 10%, annual bank fee 30000. Calculate released stock, gross/net benefit, break even fee and limit. (5 marks)

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Marks	Credit	Working / case application
1	Stock	Rs 400000.
1	Gross	Rs 40000/year.
1	Net	Rs 10000/year.
1	Fee	Rs 40000 indifference.
1	Limit	Cleared cash/real process costs needed; not delaying due payments or bypassing bank rules.

Official concept source, PDF page 18

FM-C09-D013 · 5 marks

Totals are Rs lakh unless another unit is specified. Annual uniform cash use Rs 1200000, transfer cost Rs 50, annual rate 12%, no safety. Case C=sqrt(2 Ub/i). Compute C, average, transfers, both costs and scope. (5 marks)

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Marks	Credit	Working / case application
1	C	Rs 31622.7766.
1	Average	Rs 15811.3883.
1	Transfers	37.947332/year continuous.
1	Costs	Transaction/holding each Rs 1897.3666, total 3794.7332.
1	Scope	C replenishment/max size, not average. Uniform certainflows/cost/rates assumed; integer/safety changes model.

Official concept source, PDF page 24

FM-C09-D014 · 5 marks

Totals are Rs lakh unless another unit is specified. Case lower 10000, return 25000, upper 55000 rupees. Action at upper/lower/40000 and model/authority limits. (5 marks)

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Marks	Credit	Working / case application
1	High	Invest 30000 to return 25000.
1	Low	Replenish 15000 to 25000.
1	Inside	No limit transfer at 40000.
1	Model	Random variation control not uniform depletion.
1	Limit	Inputs hypothetical; no actual cash/security transfer authorised.

Official concept source, PDF page 26

FM-C09-D015 · 5 marks

Totals are Rs lakh unless another unit is specified. Demand 12000/year, ordering Rs 100, holding Rs 4/unit/year, constant/no shortage/instant refill. Case supplies EOQ=sqrt(2 DS/H). Compute quantity/average/orders/costs and source limit. (5 marks)

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Marks	Credit	Working / case application
1	EOQ	774.596669 units.
1	Average	387.298335 without safety.
1	Orders	15.491933/year continuous.
1	Costs	Ordering/holding each 1549.1933, total 3098.3867 rupees.
1	Source	FM Unit III only refers to Costing Material Cost. Formula supplied, not full primary inventory coverage.

Official concept source, PDF page 1

FM-C09-D016 · 5 marks

Totals are Rs lakh unless another unit is specified. Average 100/max 140 units/day, normal lead 5/max 7 days. Supplied reorder=max use*max lead, min=reorder-average use*normal lead. Compute and explain scope. (5 marks)

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Marks	Credit	Working / case application
1	Reorder	980 units.
1	Normal	Lead use 500.
1	Minimum	480 units.
1	Risk	Extreme joint assumption not calculated stockout probability.
1	Source	FM Unit III referral; formula supplied. Joint distribution/service levels/shelf-life may change decision.

Official concept source, PDF page 1

FM-C09-D017 · 10 marks

Totals are Rs lakh unless another unit is specified. Present credit sales 100/proposed 120, variable cost 60%, fixed unchanged, bad debts 1%/3%, collections 30/45 days, 360 year, return 15%, no tax/discount. Cost-based investment. Calculate policy incremental profit/carrying/net. (10 marks)

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Marks	Credit	Working / case application
1	Contribution	20 x.4=8.
1	Old loss	1.
1	New loss	3.6, increment 2.6.
1	Profit	5.4.
1	Old funded	5.
1	New funded	9.
1	Extra funded	4.
1	Carry	.6 annual.
1	Net	4.8 positive on stated pre-tax basis.
1	Limit	No automatic customer credit approval, actual terms/risk/collection feasibility not established.

Official concept source, PDF page 5

FM-C09-D018 · 5 marks

Totals are Rs lakh unless another unit is specified. Annual sales 200 fixed, variable 70%, collections 45 to 30 days, 360 year; discount 1% taken by 60%; carry 12%, no other bad debt/admin/tax changes. Compute investments/release/benefit/discount/net. (5 marks)

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Marks	Credit	Working / case application
1	Old	17.5.
1	New	11.666667, release 5.833333.
1	Carry saving	.7 annual.
1	Discount	1.2 annual.
1	Net	-.5, not beneficial on given facts; no unprovided sales gain assumed.

Official concept source, PDF page 12

FM-C09-D019 · 5 marks

Totals are Rs lakh unless another unit is specified. Receivables 50, current 30, 31-60 days 10, 61-90 days 5, over 90 days 5. Compute overdue percentages and why averages may hide risk. (5 marks)

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Marks	Credit	Working / case application
1	Over 60	20%.
1	Over 90	10%.
1	Current	60%.
1	Mask	New sales balances can shorten average while stale disputed debts remain.
1	Followup	Ground accounts/terms/privacy/recipient before actual collection messages; age not legal loss proof.

Official concept source, PDF page 26

FM-C09-D020 · 5 marks

Totals are Rs lakh unless another unit is specified. Factor advertises not a loan, terms allow recourse for default/disputes and reserve. Explain cash/risk/accounting/cost and blanket claim boundaries. (5 marks)

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Marks	Credit	Working / case application
1	Cash	Advance less reserve/fees/interest, not full invoice.
1	Risk	Read credit/dispute liability and replacement/repayment terms.
1	Accounting	Derecognition depends substantive risk/control/recourse, not label.
1	Cost	Period/rate/fee/savings bases required.
1	Hold	Unit IV broad no-liability statement not universal; no current accounting/tax/contract effect verified.

Official concept source, PDF page 14

FM-C09-D021 · 10 marks

Totals are Rs lakh unless another unit is specified. Annual credit 360, 360 year, 12 equal 30 day invoice periods 30 each, reserve 10%, fee 1% invoice, advance after reserve/fee, interest 15% simple 30 days deducted upfront. Nonrecourse full credit risk; annual avoidable bad debts 2%, admin 1.4; no tax. Compute advance/net cash, annual cost/savings, net and cost ratios. (10 marks)

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Marks	Credit	Working / case application
1	Invoice	30 period base.
1	Reserve/fee	3/.3 each period.
1	Advance	26.7.
1	Interest	.33375 period.
1	Net cash	26.36625.
1	Annual fee	3.6.
1	Annual interest	4.005, total cost 7.605.
1	Savings	7.2+1.4=8.6.
1	Benefit	.995 annual.
1	Ratios	Net cost-.995/26.36625=-3.77376%, gross 7.605/26.36625=28.84370%; specified net cash stock annual simple basis, not APR/NPV.

Official concept source, PDF page 15

FM-C09-D022 · 5 marks

Totals are Rs lakh unless another unit is specified. 2/10 net 45, invoice Rs 10000, 360 year. Early payment, extra 35 day finance, cost, period/nominal/effective annual rates and source wording. (5 marks)

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Marks	Credit	Working / case application
1	Early	9800 not 10 per 100 as PDF Unit V page 3 wording.
1	Extra credit	9800 for 35 days, cost 200.
1	Period	2.040816%.
1	Nominal	.02/.98 x 360/35=20.991254%.
1	Effective	(1/.98)^(360/35)-1=23.096606%. This is effective compounding, distinct from nominal annualisation.

Official concept source, PDF page 3

FM-C09-D023 · 5 marks

Totals are Rs lakh unless another unit is specified. Same invoice Rs 10000/2/10 net 45; loan Rs 9800 for 35 days at 12% simple 360 year, no fees. Compute interest/repayment/saving/limits. (5 marks)

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Marks	Credit	Working / case application
1	Principal	9800 paid day 10.
1	Interest	114.333333.
1	Day 45	Repay 9914.333333.
1	Saving	85.666667 versus 10000.
1	Limit	Availability/terms case facts, not actual borrowing/payment authority; match period and denominators.

Official concept source, PDF page 2

FM-C09-D024 · 5 marks

Totals are Rs lakh unless another unit is specified. Net 30 agreement, no discount. Manager wants payday 60 unilaterally. Explain agreement/cost/funding/negotiation/limits. (5 marks)

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Marks	Credit	Working / case application
1	Agreement	Extra 30 not agreed free credit.
1	Cost	Penalties/supply/goodwill risk possible.
1	Funding	Prepare dated feasible payment/funding plan.
1	Negotiation	Recipient/account/terms and communication authority needed.
1	Boundary	Optimisation not instruction to withhold contractual dues.

Official concept source, PDF page 1

FM-C09-D025 · 5 marks

Totals are Rs lakh unless another unit is specified. Manager calls unpaid wages/statutory dues free with no implicit cost. Explain normal accrual/due points/costs/forecast and source scope. (5 marks)

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Marks	Credit	Working / case application
1	Normal	Accrual before agreed due date spontaneous funding.
1	Past due	Not automatically lawful/cost free.
1	Costs	Penalties/trust/staff/supplier/legal risks.
1	Forecast	Keep actual dated commitments, not suppress due outflows.
1	Source	Unit VI page 3 blanket no implicit cost needs scope; current payroll/statutory rules held.

Official concept source, PDF page 3

FM-C09-D026 · 5 marks

Totals are Rs lakh unless another unit is specified. Hypothetical face 100/proceeds 95/maturity 180 days, 360 year, no fees. Compute face yield/borrower cost/simple/effective annual and current-rule limits. (5 marks)

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Marks	Credit	Working / case application
1	Face	5% period.
1	Proceeds	5/95=5.263158% period.
1	Simple	10.526316%.
1	Effective	(100/95)^2-1=10.803324%.
1	Hold	Roll over not guaranteed; CP eligibility/denomination/maturity/redemption not current verified primary facts.

Official concept source, PDF page 3

FM-C09-D027 · 5 marks

Totals are Rs lakh unless another unit is specified. Inventory 40/debtors 30, eligible 75%/80%, sanction 50, existing draw 20. No others. Calculate eligible base/cap/room and distinguish funded credit from LC. (5 marks)

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Marks	Credit	Working / case application
1	Inventory	30.
1	Debtors	24, total 54.
1	Limit	Min 54, 50=50.
1	Room	30 additional hypothetical.
1	Types	Cash credit/overdraft fund draws versus documentary LC undertaking; actual eligibility/draw terms and owner permission not established.

Official concept source, PDF page 6

FM-C09-D028 · 5 marks

Totals are Rs lakh unless another unit is specified. CA minimum 50/peak 75, spontaneous CL 20 stable. Compare matching long 30/short 25 with aggressive long 20/short 35. Calculate needs and risk. (5 marks)

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Marks	Credit	Working / case application
1	Permanent	30 net.
1	Peak	55 net.
1	Seasonal	25.
1	Aggressive	10 permanent need short-funded beyond seasonal 25.
1	Risk	Extra permanent rollover exposure; no rates/covenants/funding commitment, not universal best.

Official concept source, PDF page 1

FM-C09-D029 · 5 marks

Totals are Rs lakh unless another unit is specified. Sales 80 to 120, debtors 10 to 25, inventory 15 to 30, cash 5 to 1; positive gross profit, bank limit unchanged, late suppliers. Explain growth strain/evidence gaps. (5 marks)

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Marks	Credit	Working / case application
1	Expansion	Sales growth can consume funded stock/credit before collections.
1	Movement	Debtors+inventory up 30/cash down 4.
1	Pattern	Consistent with activity outstripping funds, not legal insolvency finding.
1	Unknown	Collection/payable/funding dates, asset quality/margins.
1	Plan	Cash/WC/feasible options, not automatic borrow or third party disclosure.

Official concept source, PDF page 7

FM-C09-D030 · 10 marks

All amounts are Rs lakh. Linden Manufacturing has annual credit sales of 360, annual cash production cost of 60% of sales, and annual material consumption/credit purchases of 144. Use 360 days per year. RM storage is 30 days, WIP 10, FG 20, collection 45, and supplier credit 30 days. In this case, WIP and FG use the full annual cash cost of 216, with no partial-completion adjustment. Cash buffer is 5, with no other current items. The proposal reduces collection to 30 days and offers a 1% discount taken on 50% of the same sales. Costs, bad debts and administration stay unchanged. Annual carrying return is 12%. Compute gross/net cycle, CA, CL, net WC, investment release, annual benefit, discount cost and net benefit. Explain the decision limits. (10 marks)

Cash cost funding bases except where ledger balance explicitly requested.

Component	Annual basis Rs lakh	Days
RM	144	30
WIP	216	10
FG	216	20
Debtor funding	216	45
Payables	144	30

Show answer and marking

Marks	Credit	Working / case application
1	Cycle	Gross 105/net 75 days.
1	RM	12.
1	WIP	6.
1	FG	12.
1	Debtor funding	27, ledger 45 distinct.
1	CA	62.
1	CL/net	12 payables/net 50.
1	Release	Funding 27 to 18, released 9, carry benefit 1.08 annual.
1	Discount/net	1.8 cost, net-.72.
1	Limit	Not attractive on given costs, not customer/payable action; explicit bases/terms/timing, current rules held.

Official concept source, PDF page 5