MBA Sem-III

Module 5: Management of Cash

Practical Problems
Q.1. Using the following information, draw a budget for three months starting
from October, 2021:
1) Opening Cash balance in October Rs. 4,000.
2) Cash Sales October: Rs. 35,000; November: Rs. 30,000; December: Rs.
25,000.
3) Credit purchases – September Rs. 20,000; October Rs. 14,000; November
Rs. 15,000; December Rs. 14,000.
4) Suppliers allow one month period of credit.
5) Dividend receivable in November is Rs. 5,000.
6) Advance tax payable in October is Rs. 4,000 payable.
7) Sale of an old asset during the month of October is Rs. 10,000.

Q.2. Using the following information, draw a cash budget for the month of
April, May and June, 2022:
Month Credit Sales Credit purchases Office Expenses
February 55,000 20,000 7,000
March 45,000 35,000 6,000
April 50,000 15,000 8,000
May 50,000 30,000 6,000
June 60,000 45,000 7,000
Other Information:
1) Opening cash balance Rs. 4,000.
2) Suppliers allow two months of credit period.
3) Customers are given one month of credit.
4) Office expenses are paid in the same month.
5) Dividend receivable in the month of May is Rs. 2,000.
6) Interest payable in June is Rs. 1,500.
Q.3. A company expects to have opening balance of bank of Rs. 15,000 on 1st
May, 2022. Prepare Cash Budget for the month of May, June and July :
Month Sales Purchases Wages Office Factory Selling
Exp Exp Exp
March 52,000 32,000 5,000 5,000 5,500 3,500
April 54,000 31,000 7,500 5,000 6,500 3,500
May 50,000 25,000 6,000 5,000 7,000 4,500
June 60,000 44,000 8,000 5,000 8,500 4,000
July 96,000 42,000 8,500 5,000 7,000 3,500
Other Information:
1. Cash Sales account for 25% of total sales, while remaining amount is
collected in the following month.
2. Suppliers offer two months’ credit.
3. Wages and all other expenses are paid in the following month.
4. Dividend to shareholders and bonus to workers of Rs. 15,000 and Rs.
25,000 respectively is payable in the month of June.
5. Rs. 70,000 is payable in the month of May for the purchase of plant.
6. Income tax of Rs. 15,000 is payable in June.

Q.4. The following forecasts have been made for ABC Ltd for the period
January to April, 2022:
Particulars January February March April
Sales 75,000 1,05,000 1,80,000 1,05,000
Raw Materials 70,000 1,00,000 80,000 85,000
Manufacturing Expenses 10,000 20,000 29,000 16,000
Loan Instalment 1,000 11,000 21,000 21,000
Additional Information:
a. All sales are made on credit basis. 2/3 of debtors are collected in the same
month and balance in the next month. There is no expected bad debt. The
debtors on January 1, 2022 were Rs. 30,000.
b. The minimum cash balance, the firm must have is estimated to be Rs.
5,000, however, the cash balance on January 1, was Rs. 6,500.
c. Borrowing if any, can be made in multiple of Rs. 100 only.
Prepare the cash budget for the period of 4 months (ignore interest on
borrowings).

Q.5. Prepare cash budget for the period of July-December 2021 from the
following information:
i) The estimated sales and expenses are as follows:
(Figures in Rs lakhs)
Particulars June July Aug Sept Oct Nov Dec
Sales 35 40 40 50 50 60 65
Purchases 14 16 17 20 20 25 28
Wages and 12 14 14 18 18 20 22
Salaries
Expenses 5 6 6 6 7 7 7
Interest received 2 -- -- 2 -- -- 2
Sale of Fixed -- -- 20 -- -- -- --
Assets

ii) 20% of the sales are made on cash and balance on credit. 50% of the
debtors are collected in the month of sales and the remaining in the next
month.
iii) The time lag in payment of purchases and expenses is 1 month, however,
wages and salaries are paid fortnightly with a time lag of 15 days.
iv) The company keeps a minimum cash balance of Rs. 5 lakhs. The cash
balance in excess of Rs. 7 lakhs is invested in Govt Securities in multiple of
Rs. 1 lakhs. Shortfalls in cash balance are made good by borrowing from
banks. The interest received as well as paid is to be ignored.
Q.6. You are required to find out the cash inflows and outflows for the first
six months on the basis of the following information: Sales on credit, variable
cost and wages are budgeted as follows (the November and December figures
of the previous year being the actual figures for those months):
Month Credit Sales Variable Wages
Cost
November, 2021 10,000 7,000 1,000
December, 2021 12,000 7,500 1,100
January, 2022 14,000 8,000 1,200
February 13,000 7,700 1,000
March 10,000 7,000 1,000
April 12,000 7,500 1,100
May 13,000 7,750 1,200
June 16,000 8,750 1,300
Fixed expenses amount to Rs. 1,500 per month, and the half year’s preference
dividend of Rs. 1,400 is due on June 30.
Advance tax amounting to Rs. 8,000 is payable in January and progress
payment under a building contract are due as follows: March 31 Rs. 5,000;
and May 31, Rs. 6,000.
The terms on which goods are sold are net cash in the month following
delivery.
Variable costs are payable in the month following that in which they are
incurred and 50% are subject to 2.5% discount, and the balance are net. It is
found that 75% of debtors to whom sales are made pay within the period of
credit, and the remainder do not pay until the following month. The company
pays all its accounts promptly.

Q.7. L Co. has given the forecast sales for January, 2022 to July, 2022 and
actual sales for November and December 2021 as under. With the other
particulars given, prepare a Cash Budget for the months i.e. from January to
May, 2022
i) Sales
November, 2021 1,60,000
December, 2021 1,40,000
January, 2022 1,60,000
February, 2022 2,00,000
March, 2022 1,60,000
April, 2022 2,00,000
May, 2022 1,80,000
June, 2022 2,40,000
July, 2022 2,00,000
ii) Sales 20% cash, and 80% credit, credit period two months.
iii) Variable expenses 5% on turnover, time lag of half month.
iv) Commission 5% on credit sale payable in two months.
v) Purchases are 60% of the sales. Payment will be made in 3rd month of
purchases.
vi) Rent Rs. 6,000 paid every month.
vii) Other payments: Fixed assets purchase – February Rs. 36,000 and March
Rs. 1,00,000; Taxes – April Rs. 40,000.
viii) Opening cash balance Rs. 50,000.