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.
FM-C09-T001 · 2 marksRead shared case
At base, gross operating cycle?
Explanation
Correct answer C: 105 days.
30+10+20+45.
FM-C09-T002 · 2 marksRead shared case
At base, net cash conversion cycle?
Explanation
Correct answer C: 75 days.
105-30.
FM-C09-T003 · 2 marksRead shared case
Raw material funding?
Explanation
Correct answer B: 12 lakh.
144 x 30/360.
FM-C09-T004 · 2 marksRead shared case
WIP funding on explicitly supplied full cost base?
Explanation
Correct answer D: 6 lakh.
216 x 10/360; full case basis explicit.
FM-C09-T005 · 2 marksRead shared case
FG funding?
Explanation
Correct answer C: 12 lakh.
216 x 20/360.
FM-C09-T006 · 2 marksRead shared case
Cost-funded receivables and ledger receivables?
Explanation
Correct answer B: 27 and 45 lakh respectively.
216 x 45/360 versus 360 x 45/360.
FM-C09-T007 · 2 marksRead shared case
Gross cash-cost CA including buffer?
Explanation
Correct answer D: 62 lakh.
12+6+12+27+5.
FM-C09-T008 · 2 marksRead shared case
Payables and net funded WC?
Explanation
Correct answer B: 12 and 50 lakh.
144 x 30/360=12; 62-12=50.
FM-C09-T009 · 2 marksRead shared case
New 30 day collection: released cost funding and annual carrying benefit?
Explanation
Correct answer A: 9 and 1.08 lakh.
27 to 18 funding; 9 x.12.
FM-C09-T010 · 2 marksRead shared case
Annual discount cost and net benefit?
Explanation
Correct answer C: 1.8 cost and-.72 net benefit; not attractive on given financial facts.
360 x.5 x.01=1.8; 1.08-1.8=-.72.
FM-C09-T011 · 2 marksCA minimum 20, peak 35; current-asset investment conservatism means what?
Explanation
Correct answer A: Higher buffers/current assets, distinct from long-versus-short financing maturity.
Asset investment and funding policy are separate decisions.
FM-C09-T012 · 2 marksAverage FG 9/annual COGS 216, 360 year. FG days?
Explanation
Correct answer B: 15.
9/216 x 360.
FM-C09-T013 · 2 marksCash-cost funding estimate omits depreciation and sales profit because what?
Explanation
Correct answer B: They are not cash costs tied in that specified funding basis.
Funding estimate is not automatically balance-sheet measurement.
FM-C09-T014 · 2 marksHistorical payables 10, credit purchases 120, 360 year. Days?
Explanation
Correct answer D: 30.
10/120 x 360.
FM-C09-T015 · 2 marksFull forecast net WC 13.75, contingency 10% of net. Required total?
Explanation
Correct answer D: 15.125 lakh.
13.75 x 1.1; base explicit.
FM-C09-T016 · 2 marksCash budget: opening 54, February receipts 104/payments 100. Closing before finance?
Explanation
Correct answer A: 58 lakh.
54+104-100.
FM-C09-T017 · 2 marksMarch credit sales 64 with one-month collection lag belongs in cash at what time?
Explanation
Correct answer A: April, not March.
Cash receipt lag differs accrual revenue date.
FM-C09-T018 · 2 marksA cleared float process frees 400000 cash at 10% annual return, fee 30000/year. Net annual saving?
Explanation
Correct answer A: 10000 rupees.
40000-30000.
FM-C09-T019 · 2 marksBaumol cash size 31622.7766/U 1200000/transfer 50/i 12%. Annual cost relation?
Explanation
Correct answer D: Holding and transfer costs each 1897.3666 under continuous optimum.
bU/C=iC/2 at optimum.
FM-C09-T020 · 2 marksMiller-Orr lower 10000/return 25000/upper 55000. At lower replenish?
Explanation
Correct answer A: 15000 rupees.
Return minus lower.
FM-C09-T021 · 2 marksFM Unit III Inventory source contains what?
Explanation
Correct answer B: A brief overview referring to Costing Material Cost for detailed inventory treatment.
Detailed primary inventory coverage remains held; exercise formulas supplied.
FM-C09-T022 · 2 marksProposed credit policy profit increment 5.4, extra funding 4, return 15%. Net annual benefit?
Explanation
Correct answer B: 4.8 lakh.
5.4-.6.
FM-C09-T023 · 2 marksCustomer discount policy sales 200/variable 70%; collections 45 to 30/360; carry 12%; discount 1% on 60%. Net benefit?
Explanation
Correct answer C: -.5 lakh annually.
Investment release 5.8333 saves.7; discount 1.2.
FM-C09-T024 · 2 marksOld over 90 balances stay 5 but new current sales balances grow. Average collection may fall. What follows?
Explanation
Correct answer D: Inspect ageing/cohorts; falling average does not erase stale risk.
Changing denominator can mask old trouble.
FM-C09-T025 · 2 marksPeriodic factor invoice 30, reserve 3, fee.3, interest 15% for 30/360 deducted from advance 26.7. Net cash?
Explanation
Correct answer A: 26.36625 lakh.
Interest.33375; subtract from 26.7.
FM-C09-T026 · 2 marksSame 12 factor periods annual fee 3.6/interest 4.005, saving bad debts 7.2/admin 1.4. Net annual benefit?
Explanation
Correct answer C: .995 lakh under stipulated nonrecourse savings.
8.6-7.605.
FM-C09-T027 · 2 marks2/10 net 45, 360 year. Nominal annual forgone discount cost formula?
Explanation
Correct answer D: (.02/.98)x 360/35, about 20.9913%.
Extra credit window 35 days and net cash principal 98.
FM-C09-T028 · 2 marksSupplier net 30, no agreement extension. Unilaterally pay 60 is what?
Explanation
Correct answer C: Overdue payment risk, not established free negotiated credit.
Current terms/maturity and goodwill/supply risks matter.
FM-C09-T029 · 2 marksCP face 100/proceeds 95/180 days, 360 year. Effective annual cost?
Explanation
Correct answer D: 10.803324%.
(100/95)^2-1.
FM-C09-T030 · 2 marksPermanent net need 30, seasonal 25; long 20/short 35. What differs from matching?
Explanation
Correct answer C: 10 of permanent need is short-funded, adding rollover exposure.
Matching long 30/short 25 versus aggressive 20/35.