1. ABC ltd has estimated the use of Rs 24 lakhs of cash during the next year.

It intends to hold
cash in a commercial bank which pay interest@ 10% pa. For each withdrawal, the company
incurs expense of Rs 150. What is the optimal size for each withdrawal?

2. Tarus has an estimated cash payment of Rs 8 lakh for a 1 month period. The fixed cost per
transaction is Rs 250. Interest rate on marketable securities is 12% pa. Calculate the
optimum transaction size.

3. Emaar has an annual turnover of Rs 84 crores. The sales is spread evenly throughout the
year during the working weeks of the year.

However, the pattern within each week is that the daily receipts on Mondays & Tuesdays is
twice that experienced on the other 3 days of the week. The cost of banking is estimated at
Rs 2,500 per day. It is suggested that the banking should be done daily or twice a week on
Tuesdays & Fridays instead of the current practise of banking only on Fridays. The company
operates on bank overdraft and current rate of interest is 15% pa. This interest charge is
applied on a simple daily basis. Assume 360 days in a year for interest calculations. Assume
50 weeks in a year.Advise the company on the line of action.

4. From the following particulars a cash budget for the quarter ended 31.03.2010.

Month Sales Purchases Wages Expenses

Nov 09 500,000 100,000 200,000 40,000

Dec 09 600,000 200,000 200,000 40,000

Jan 10 400,000 300,000 220,000 50,000

Feb 10 500,000 200,000 220,000 50,000

Mar 10 600,000 100,000 240,000 50,000

Other information:

 10% of sales and purchases are on cash

 Credit to debtors: 1 month. On an average 50% of debtors make payment on the

due date while the rest make payment one month thereafter.

 Credit from creditors: 2 months, 1% cash discount if the payment is made within 1
month.

 It is estimated that 50% of the creditors will be paid within 1 month.

 Lag in payment of wages is 15 days.

 Expenses generally paid in the same month

 Plant costing Rs 100,000 installed on 31 st January, on payment of 25% of the cost in

addition to installation cost of Rs 5,000 and balance to be paid in 3 equal monthly
instalments from the following month including interest @ 12% pa on unpaid
balance.

 Cash balance on 01.01.2010 is expected to be Rs 200,000.

5. Prepare a cash budget for 3 months ended 30.06.2012 based on:

Cash as on 01.04.2012 Rs 25,000

Salaries & wages estimated monthly Rs 10,000

Interest payable – May 2012 Rs 5,000

Estimated March April May June

Cash sales actual 140,000 152,000 121,000

Credit sales 100,000 80,000 140,000 120,000

Purchases 160,000 170,000 240,000 180,000

Other expense ------ 20,000 22,000 21,000

Credit sales are collected 50% in the month in which sales are made and 50% in the month
following.

Collection from credit sales are subject to 5% discount if payments are received during the
month of sales and 2 1/2% if payment is received in the month following.

Creditors are paid either on ‘prompt’ or 30 days basis. It is estimated that 10% of the
creditors are in the ‘prompt’ category.

The company wants to maintain a minimum cash balance of Rs.80,000. Any shortfall to be
borrowed. Any excess to be used for repayment of loan, if any. Ignore interest on
borrowings.

6. Texas Manufacturing Co is to start production on 01.01.2012. The prime cost of a unit is

expected to be Rs 40 out of which Rs 16 is for materials and Rs 24 for labour. In addition
variable expenses per unit are expected to be Rs 8 and fixed cash expenses per month Rs
30,000. Payment for materials is to be made in the month following the purchase. One third
of sales will be for cash and the rest on credit for settlement in the following month.
Expenses are payable in the month in which they are incurred.

The selling price is fixed at Rs 80 per unit. The number of units manufactured and sold are
expected to be as under:

January 900 February 1,200

Draw up a statement showing requirement of cash for the month of February, ignoring the
question of stocks.

7. Prepare a cash budget for the quarter beginning from 01.07.2011 from the following
information:

(fig in ‘000s)

Month Sales Purchases Wages Ohs Other exp

June 11 120 62 24 8 6

July 11 130 67 27 7 8
 Aug 11 124 60 25 7 7

Sep 11 132 65 26 9 8

Other information:

i. 25% of the sales are for cash and the balance are on 1 month credit

ii. The purchases are on 1 month credit

iii. All other expenses are paid in the same month

iv. Advance income tax of Rs 100,000 is due in August 2011 ,out of which Rs 50,000
were paid immediately and the remaining in the next month.

v. The cash in hand on 01.07.2011 was Rs 32,300.

8. Prepare a cash budget for Apr-Oct from the following information:

Balance Sheet as at 31st March

Liabilities Assets

Capital Cash 20,500

100,000

Outstanding liabilities 17,000 Stock 50,500

Debtors 26,000

Furniture 25,000

Lessdep 5,000 20,000

117,000
117,000

Apr May June July Aug Sep Oct

Sales 30,000 52,000 50,000 75,000 90,000 35,000 25,000

Salary 3,000 3,500 3,500 4,000 4,000 3,000 3,000

Rent 1,000 1,000 1,000 1,000 1,000 1,000 1,000

Misc exp 500 500 500 500 500 500 500

 Rent and misc exp pd in the same month.

 Commission of 1% of sales, pd in the month of the sales itself.

 80% of sales on credit.

 70% of cr sales are collected in the 1 st month following sale & the balance in the 2 nd month.

 No bad debts
  Gross margin on sales = 30%

 Purchases equal to teh next month’s sales are made every month and they are paid during
the month in which they are made

 Minimum cash balance Rs 10,000

 Cash deficiencies are made up by the bank loans which are repaid at the earliest opportunity
available and cash in excess of Rs 15,000 is invested in securities. (Interest on loans and
securities to be ignored)

 Outstanding liabilities remain unchanged

 Debtors amounting to Rs 20,000 pertain to credit sales of March and tHE remaining Rs 6000
pertain to February collected in April.

9. Prepare cash budget for July- Dec from the following information:

The estimated sales, exp are as follows: (Rs lakh)

June July Aug Sep Oct Nov Dec

Sales 35 40 40 50 50 60 65

Purchase 14 16 17 20 20 25 28

Wages & 12 14 14 18 18 20 22
sal

Misc exp 5 6 6 6 7 7 7

Int recd 2 --- --- 2 --- --- 2

Sale of --- --- 20 --- --- --- ---

shares

 20% of the sales are on cash and the balance on credit

 1% of the cr sales are returned by the customers; 2% debts are uncollectable;50% of the good
a/cs receivable are collected in the month of the sales and the rest during the next month

 The time lag in payment of misc exp & purchases is 1 month. Wages and salaries are paid
fortnightly with a time-lag of 15 days.

 The co keeps a minimum cash balance of Rs 5 lakhs. Cash in excess of Rs 7 lakhs is invested in
Govt securities in multiples of Rs 1 lakh. Shortfalls in teh minimum cash balance are made
good borrowings from the bank. Ignore interest eceived and paid