Management of Working Capital

Amounts are Rs lakh unless another unit is specified. 30 original test MCQs, 2 marks each. Practice and separate-test stems differ. T001-T010 use one shared case below; T011-T030 stand alone.

Original practice, not official ICAI questions or suggested answers. Scores are temporary and not synced to Study Hub. Contract/current-rule/accounting/tax boundaries are included in the review pack.

Not scored yet.

Linden Manufacturing: shared case for T001-T010

Shared case: Linden Manufacturing, T 001-T 010 Annual credit sales are Rs 360 lakh; cash production cost is 60% of sales. Annual material consumption and credit purchases are Rs 144 lakh. Use 360 days/year. RM storage 30 days, WIP 10, FG 20, receivables 45 and supplier credit 30 days. For these exercises the cash WIP and FG funding bases are expressly the full annual cash production cost 216 lakh, with no partial-completion adjustment. Debtors funding also uses that cost base, while ledger receivables use credit sales. Cash buffer 5 lakh, no other current assets/liabilities, no taxes or contingencies. A proposed customer policy reduces collection to 30 days, with 1% discount taken on 50% of the same annual sales. Sales volume, cash costs, bad debts and administration stay unchanged. Required carrying return is 12% annually on funded cash-cost balances. Compute investment release and annual carrying saving separately from annual discount cost. This cost basis is not a universal balance-sheet valuation rule. No supplier/customer action or bank finance is authorised; current contract/regulatory availability is not established. First 10 questions are independently scored.

Plan comparison	Value / stated unit
Days per year	360
Annual credit sales, Rs lakh	360
Carrying return, percent	12

FM-C09-T001 · 2 marks

Read shared case

At base, gross operating cycle?

A. 135 days. B. 45 collection only. C. 105 days. D. 75 net cash cycle.

FM-C09-T002 · 2 marks

Read shared case

At base, net cash conversion cycle?

A. 105 gross. B. 30 supplier credit. C. 75 days. D. 135 adds payables.

FM-C09-T003 · 2 marks

Read shared case

Raw material funding?

A. 18 lakh at 45 days. B. 12 lakh. C. 6 WIP funding. D. 144 annual cost.

FM-C09-T004 · 2 marks

Read shared case

WIP funding on explicitly supplied full cost base?

A. 12 FG funding. B. 3 automatically half-completes. C. 216 annual cost. D. 6 lakh.

FM-C09-T005 · 2 marks

Read shared case

FG funding?

A. 20 days as value. B. 6 WIP. C. 12 lakh. D. 18 new debtor funding.

FM-C09-T006 · 2 marks

Read shared case

Cost-funded receivables and ledger receivables?

A. 45 and 27 reversed. B. 27 and 45 lakh respectively. C. 216 and 360 annual flows. D. 27 and 27 always identical.

FM-C09-T007 · 2 marks

Read shared case

Gross cash-cost CA including buffer?

A. 50 net WC. B. 80 uses ledger debtors instead. C. 57 excludes buffer. D. 62 lakh.

FM-C09-T008 · 2 marks

Read shared case

Payables and net funded WC?

A. 18 and 44. B. 12 and 50 lakh. C. 12 and 62. D. 30 and 32.

FM-C09-T009 · 2 marks

Read shared case

New 30 day collection: released cost funding and annual carrying benefit?

A. 9 and 1.08 lakh. B. 15 and 1.8 using ledger release. C. 27 and 3.24 entire old stock. D. 18 and 2.16 new stock as saving.

FM-C09-T010 · 2 marks

Read shared case

Annual discount cost and net benefit?

A. Automatically approve because cash cycle shorter. B. 3.6 cost and+1.08 benefit. C. 1.8 cost and-.72 net benefit; not attractive on given financial facts. D. 1.08 cost and+.72 benefit.

FM-C09-T011 · 2 marks

CA minimum 20, peak 35; current-asset investment conservatism means what?

A. Higher buffers/current assets, distinct from long-versus-short financing maturity. B. Guaranteed optimal profit. C. Always only more long-term borrowing. D. No inventory risk.

FM-C09-T012 · 2 marks

Average FG 9/annual COGS 216, 360 year. FG days?

A. 9 days from stock value. B. 15. C. 10 WIP case. D. 30 RM case.

FM-C09-T013 · 2 marks

Cash-cost funding estimate omits depreciation and sales profit because what?

A. Accounting records must delete depreciation/profit. B. They are not cash costs tied in that specified funding basis. C. All debtor balances must be at variable cost. D. Only cash assets qualify as current.

FM-C09-T014 · 2 marks

Historical payables 10, credit purchases 120, 360 year. Days?

A. 10. B. 36. C. 60. D. 30.

FM-C09-T015 · 2 marks

Full forecast net WC 13.75, contingency 10% of net. Required total?

A. 13.75 excluding contingency. B. 1.375 contingency only. C. 19.1583 contingency on gross CA. D. 15.125 lakh.

FM-C09-T016 · 2 marks

Cash budget: opening 54, February receipts 104/payments 100. Closing before finance?

A. 58 lakh. B. 4 net flow only. C. 54 unchanged. D. 158 ignoring payments.

FM-C09-T017 · 2 marks

March credit sales 64 with one-month collection lag belongs in cash at what time?

A. April, not March. B. Time 0 automatically. C. February. D. March because sales recognised then.

FM-C09-T018 · 2 marks

A cleared float process frees 400000 cash at 10% annual return, fee 30000/year. Net annual saving?

A. 10000 rupees. B. 40000 before fee. C. -30000 ignoring return. D. 400000 released stock as annual saving.

FM-C09-T019 · 2 marks

Baumol cash size 31622.7766/U 1200000/transfer 50/i 12%. Annual cost relation?

A. Transfer cost always 1200000. B. Average balance equals C. C. Both costs zero. D. Holding and transfer costs each 1897.3666 under continuous optimum.

FM-C09-T020 · 2 marks

Miller-Orr lower 10000/return 25000/upper 55000. At lower replenish?

A. 15000 rupees. B. No action at lower. C. 30000 high-trigger investment. D. 25000 adds full return point.

FM-C09-T021 · 2 marks

FM Unit III Inventory source contains what?

A. A bank credit approval. B. A brief overview referring to Costing Material Cost for detailed inventory treatment. C. Current supplier inventory data. D. All EOQ/reorder derivations verified there.

FM-C09-T022 · 2 marks

Proposed credit policy profit increment 5.4, extra funding 4, return 15%. Net annual benefit?

A. 5.4 ignoring carrying. B. 4.8 lakh. C. 9.4 adding funded stock as profit. D. .6 charge alone.

FM-C09-T023 · 2 marks

Customer discount policy sales 200/variable 70%; collections 45 to 30/360; carry 12%; discount 1% on 60%. Net benefit?

A. +1.2 discount treated as revenue. B. +.7 savings without discount. C. -.5 lakh annually. D. +.5 sign flip.

FM-C09-T024 · 2 marks

Old over 90 balances stay 5 but new current sales balances grow. Average collection may fall. What follows?

A. Loss probability zero. B. All legal collection steps authorised. C. All old debts became current. D. Inspect ageing/cohorts; falling average does not erase stale risk.

FM-C09-T025 · 2 marks

Periodic factor invoice 30, reserve 3, fee.3, interest 15% for 30/360 deducted from advance 26.7. Net cash?

A. 26.36625 lakh. B. 30 entire invoice. C. 26.7 before interest. D. 27 ignoring fee/interest.

FM-C09-T026 · 2 marks

Same 12 factor periods annual fee 3.6/interest 4.005, saving bad debts 7.2/admin 1.4. Net annual benefit?

A. 7.605 entire cost as benefit. B. 8.6 ignores fees. C. .995 lakh under stipulated nonrecourse savings. D. -.995 sign flip.

FM-C09-T027 · 2 marks

2/10 net 45, 360 year. Nominal annual forgone discount cost formula?

A. (.02/.98)x 360/10. B. Always exactly 2% annual. C. .02 x 360/45 face/time base wrong. D. (.02/.98)x 360/35, about 20.9913%.

FM-C09-T028 · 2 marks

Supplier net 30, no agreement extension. Unilaterally pay 60 is what?

A. Always no implicit cost. B. Automatically lawful finance. C. Overdue payment risk, not established free negotiated credit. D. A corporate cash dividend.

FM-C09-T029 · 2 marks

CP face 100/proceeds 95/180 days, 360 year. Effective annual cost?

A. 5% period face yield. B. 10% face annual discount. C. 10.526316% simple annual. D. 10.803324%.

FM-C09-T030 · 2 marks

Permanent net need 30, seasonal 25; long 20/short 35. What differs from matching?

A. No refinancing risk exists. B. All short 35 seasonal only. C. 10 of permanent need is short-funded, adding rollover exposure. D. Always best regardless rates.