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June 2026Q. 6A(i)5 marksSyllabus 2022
(i)‘‘Cash Flow Analysis is an important financial tool for management in decision making.’’ Explain this statement and discuss the advantages of cash flow analysis.
A business enterprise needs sufficient cash to meet its various obligations in the near future such as payment for purchase of fixed assets, payment of debts maturing in the near future, expenses of the business, etc. A historical analysis of the different sources and applications of cash will enable the management to make reliable cash flow projections for the immediate future. It may then plan out for investment of surplus to meet the deficit, if any. Thus, a cash flow analysis is an important financial tool for the management in decision making.
Advantages of cash flow analysis
1)Helps in efficient cash management : Cash flow analysis helps in evaluating financial policies and cash position. Cash is the basis for all operations; hence a projected cash flow statement will enable the management to plan and coordinate the financial operations properly. The management can know how much cash is needed, from which source it will be derived, how much can be generated internally and how much could be obtained from outside.
2)Helps in internal financial management : Cash flow analysis provides information about funds which will be available from operations. This will help the management in determining policies regarding internal financial management, e.g., possibility of repayment of long-term debts, dividend policies and planning the replacement of plant and machinery.
3)Discloses the movements of cash : Cash flow statement discloses the complete story of cash movement. The increase or decrease in cash, and the reasons therefore can be known. It discloses the reasons for low cash balance in spite of heavy operating profits or for heavy cash balance in spite of low profits. However, comparison of original forecast with the actual results highlights the trends of movements of cash which may otherwise go undetected.
4)Discloses success or failure of cash planning : The extent of success or failure of cash planning can be known by comparing the projected cash flow statement with the actual cash flow statement so that necessary remedial measures can be taken.
5)Evaluate management decisions : The statement of cash flows reports t he companies’ investing and financing activities and thus gives the investors and creditors about cash flow information for evaluating managers’ decisions.
6)Show the relationship of net income to changes in the business cash : Usually cash and net income move together. High levels of income tend to lead to increase in cash and vice- versa. However, a company’s cash balance can decrease when its net income is high, and cash can increase when income is low. The users want to know the difference between the net profit and net cash provided by operations. The net profit shows the progress of the business during the year while cash flow relates more to the liquidity of the business. The users can assess the reliability of net profit with the help of cash flow statement.
7)Efficiency in cash management : Cash flow analysis helps in evaluating financial policies and cash position. It facilitates the management to plan and co-ordinate the financial operations properly. The management can estimate how much funds are needed, from which source they will be derived, how much can be generated internally and how much should be arranged from outside.
Source: ICSI Guideline Answers, June 2026, Q. 6A(i) (Syllabus 2022).
June 2025Q. 6A(iv)5 marksSyllabus 2022
(iv)What are the safety stocks in terms of working capital management ?
Safety stock is a buffer to meet unanticipated increase in usage. The usage of inventory cannot be perfectly forecast. The demand for inventory may fluctuate and delivery of inventory may also be delayed. In such a situation, the firm can face a problem of stock out, the stock out can prove costly by affecting the smooth working of the concern. To protect against the stock out arising out of usage fluctuations, firms usually maintain some margin of safety stocks. The basic problem is to determine the level of quantity of safety stocks.
Two costs are involved in the determination of the stock i.e.:
-Opportunity cost of stock outs
-Carrying costs.
The stock outs of raw material cause production disruption resulting in higher costs of production. Similarly, the stock outs of finished goods may result in the failure of the firm in competition as the firm cannot provide proper customer service. If a firm maintains low level of safety stock, frequent stock outs will occur resulting in larger opportunity costs. On the other hand, the larger quantities of safety stocks involve higher carrying costs.
***
Source: ICSI Guideline Answers, June 2025, Q. 6A(iv) (Syllabus 2022).
December 2024Q. 43 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Initial Working Capital :
(A)Is required at the time of the commencement of business
(B)Represents the amount utilized at the time of contingencies
(C)Supplies the funds necessary to meet the current working expenses
(D)Is used to raise the volume of production by improvement or extension of machinery
Answer: (A) Is required at the time of the commencement of business
Source: ICSI Guideline Answers (answer key), December 2024, Q. 43 (Financial and Strategic Management paper, Syllabus 2017).
December 2024Q. 44 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Opening and closing balance of creditors are ₹ 3,00,000 & ₹ 3,60,000 respectively. Raw material purchased on credit was ₹ 11,00,000. Creditor’s payment period for the purpose of working capital statement will be :
[1 year = 360 days]
(A)98 days
(B)100 days
(C)104 days
(D)108 days
Answer: (D) 108 days
Source: ICSI Guideline Answers (answer key), December 2024, Q. 44 (Financial and Strategic Management paper, Syllabus 2017).
December 2024Q. 45 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Operating cost is ₹ 18,90,000
Current assets are ₹ 7,20,000
Current liabilities are ₹ 3,00,000
Operating cycle days = ?
(1 year = 360 days)
(A)19 days
(B)70 days
(C)80 days
(D)99 days
Answer: (C) 80 days
Source: ICSI Guideline Answers (answer key), December 2024, Q. 45 (Financial and Strategic Management paper, Syllabus 2017).
December 2024Q. 47 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Current assets are twice the current liabilities. If the net working capital is ₹ 70,000, current assets would be :
(A)₹ 60,000
(B)₹ 1,00,000
(C)₹ 1,20,000
(D)₹ 1,40,000
Answer: (D) ₹ 1,40,000
Source: ICSI Guideline Answers (answer key), December 2024, Q. 47 (Financial and Strategic Management paper, Syllabus 2017).
December 2024Q. 48 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Increasing the credit period from 30 to 60 days, in response to a similar action taken by all of our competitors, would likely result in :
(A)Higher profits
(B)An increase in sales
(C)A decrease in bad debt losses
(D)An increase in the average collection period
Answer: (D) An increase in the average collection period
Source: ICSI Guideline Answers (answer key), December 2024, Q. 48 (Financial and Strategic Management paper, Syllabus 2017).
June 2024Q. 2 (CMA)1 markMCQCorporate and Management Accounting paper, Syllabus 2017
A purchased goods for the list price of ₹ 60,000 with a trade discount @ 20% and cash discount @ 5%. A paid 40% on the date of purchase. The amount of cash discount will be :
(A)₹ 12,000
(B)₹ 3,000
(C)₹ 2,400
(D)₹ 960
Answer: (D) ₹ 960
Source: ICSI Guideline Answers (answer key), June 2024, Q. 2 (Corporate and Management Accounting paper, Syllabus 2017).
June 2024Q. 37 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
............. refers to the difference between current assets and current liabilities.
(A)Operational working capital
(B)Differential working capital
(C)Net working capital
(D)Gross working capital
Answer: (C) Net working capital
Source: ICSI Guideline Answers (answer key), June 2024, Q. 37 (Financial and Strategic Management paper, Syllabus 2017).
June 2024Q. 38 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Current assets are those assets :
(A)Which cannot be sold by the companies for profit making
(B)Which are not liquid for the company
(C)Which can be converted to cash within a period of one year
(D)All of the above
Answer: (C) Which can be converted to cash within a period of one year
Source: ICSI Guideline Answers (answer key), June 2024, Q. 38 (Financial and Strategic Management paper, Syllabus 2017).
June 2024Q. 40 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
An aggressive current assets policy indicate :
(A)Higher liquidity and poor-risk
(B)Higher risk and poor liquidity
(C)Higher risk and higher liquidity
(D)Lower risk with lower liquidity
Answer: (B) Higher risk and poor liquidity
Source: ICSI Guideline Answers (answer key), June 2024, Q. 40 (Financial and Strategic Management paper, Syllabus 2017).
June 2024Q. 43 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Maximum permissible bank finance as per the first method of Tandon Committee norms was ₹ 57,75,000 while current liabilities are reported at ₹ 75,00,000. Current assets are equal to ₹ :
(A)1,45,99,000
(B)1,98,00,000
(C)1,25,00,000
(D)1,52,00,000
Answer: (D) 1,52,00,000
Source: ICSI Guideline Answers (answer key), June 2024, Q. 43 (Financial and Strategic Management paper, Syllabus 2017).
June 2024Q. 56 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
A Company’s Raw material storage period is 20 days; Finished goods storage period is 25 days; Receivables (Debtors) collection period is 40 days; Credit period allowed by suppliers (Creditors) is 50 days.
What is the length of operating cycle of the company ?
(A)85 days
(B)40 days
(C)35 days
(D)135 days
Answer: (C) 35 days
Source: ICSI Guideline Answers (answer key), June 2024, Q. 56 (Financial and Strategic Management paper, Syllabus 2017).
June 2024Q. 6A(i)5 marksSyllabus 2022
( i )‘‘The concept of negative working capital is a sign of strong bargaining power, ’ Comment and explain with an example.
Concept of negative working capital is a sign of strong bargaining power. Negative working capital
implies a situation where current liabilities are more than current assets. Generally, a negative working capital is a sign that an entity maybe facing bankruptcy or serious financial problems. Poor working capital management could lead to increased borrowing and late payments to creditors. This could result in lower credit rating. Also, the entity may have to forego revenue growth opportunities due to lack of working capital.
Another situation where a company can have negative working capital is where inventory is sold and cash generated in quick time. These are companies with the bargaining power to take advance against supply of goods or services or demand a slightly longer credit period from suppliers. Negative working capital can be a sign of managerial efficiency in a business with low inventory and accounts receivable.
Low working capital requirements also imply a possible higher return on capital employed.
Example:
Suppose Wal-Mart orders 500,000 copies of a DVD to Warner Brothers and they were supposed to pay within 30 days. What if by the sixth or seventh day, Wal-Mart had already put the DVDs on the shelves of its stores across the country? By the twentieth day, they may have sold all of the DVDs. Here, Wal-Mart received the DVDs, shipped them to its stores, and sold them to the customer (making a profit in the process), all before they had paid Warner Brothers! If Wal-Mart can continue to do this with all of its suppliers, it doesn’t really need to have enough cash on hand to pay all of its accounts payable. As long as the transactions are timed right, they can pay each bill as it comes due, maximizing their efficiency. The bottom line is that a negative working capital can also be a sign of managerial efficiency in a business with low inventory and accounts receivable (which means they operate on an almost strictly cash basis).
Source: ICSI Guideline Answers, June 2024, Q. 6A(i) (Syllabus 2022).
December 2023Q. 77 (CMA)1 markMCQCorporate and Management Accounting paper, Syllabus 2017
Higher level management mostly involved in decision making by selecting best alternatives from among the available. Hence, reporting to higher level management should be with :
(A)More types of reports
(B)More frequent reports
(C)More detailed report
(D)All the above
Answer: (A) More types of reports
Source: ICSI Guideline Answers (answer key), December 2023, Q. 77 (Corporate and Management Accounting paper, Syllabus 2017).
December 2023Q. 4 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
The shareholder value maximisation model holds that the primary goal of the firm is to maximise :
(A)Accounting profit
(B)Liquidity
(C)Market value
(D)Working capital
Answer: (C) Market value
Source: ICSI Guideline Answers (answer key), December 2023, Q. 4 (Financial and Strategic Management paper, Syllabus 2017).
December 2023Q. 9 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Which of the following would be consistent with a more aggressive approach to financing working capital ?
(A)Financing short-term needs with shortterm funds.
(B)Financing permanent inventory buildup with long-term debt.
(C)Financing some long-term needs with short-term funds.
(D)Financing seasonal needs with shortterm funds.
Answer: (C) Financing some long-term needs with short-term funds.
Source: ICSI Guideline Answers (answer key), December 2023, Q. 9 (Financial and Strategic Management paper, Syllabus 2017).
December 2023Q. 13 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Commercial paper is a ................. issued by .................. interest rate of which is linked to .................. .
(A)Debenture, Corporates, 1 Yr Gov. Securities Yield
(B)Promissory Note, Corporates, 1 Yr Gov. Securities Yield
(C)Promissory Note, Banks, 1 Yr Gov. Securities Yield
(D)Promissory Note, Banks, RBI Repo Rate
Answer: (B) Promissory Note, Corporates, 1 Yr Gov. Securities Yield
Source: ICSI Guideline Answers (answer key), December 2023, Q. 13 (Financial and Strategic Management paper, Syllabus 2017).
December 2023Q. 22 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Following information is provided by the Lake Ltd. for the year ending 31 March 2023 :
Raw material storage period — 60 days
WIP conversion period — 22 days
Finished goods storage period — 29 days
Debt collection period — 40 days
Creditor’s payment period — 60 days
Annual operating cost including depreciation of ₹ 2,00,000 was ₹ 20,00,000.
[1 Year = 360 days]
You are required to calculate working capital on cash cost basis, assuming no cost classification is available.
(A)4,66,667
(B)4,55,000
(C)5,05,555
(D)10,55,000
Answer: (B) 4,55,000
Source: ICSI Guideline Answers (answer key), December 2023, Q. 22 (Financial and Strategic Management paper, Syllabus 2017).
December 2023Q. 24 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Which of the following is a factor that affects the optimal level of working capital?
(A)Sales revenue
(B)Competitive position of firm
(C)Fixed assets
(D)Management style
Answer: (A) Sales revenue
Source: ICSI Guideline Answers (answer key), December 2023, Q. 24 (Financial and Strategic Management paper, Syllabus 2017).
December 2023Q. 26 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Which of the following indicates aggressive working capital policy ?
(A)Higher liquidity and poor risk
(B)Higher risk and higher liquidity
(C)Higher risk and poor liquidity
(D)Lower risk with lower liquidity
Answer: (C) Higher risk and poor liquidity
Source: ICSI Guideline Answers (answer key), December 2023, Q. 26 (Financial and Strategic Management paper, Syllabus 2017).
December 2023Q. 27 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Which of the following is a technique used to manage working capital ?
(A)Factoring
(B)IPO
(C)Mergers and Acquisitions
(D)Divestment
Answer: (A) Factoring
Source: ICSI Guideline Answers (answer key), December 2023, Q. 27 (Financial and Strategic Management paper, Syllabus 2017).
December 2023Q. 30 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Which of the following is the most important determinants of a firm’s cash reserve requirements ?
(A)Size of the firm
(B)Industry type
(C)Sales and profitability
(D)Seasonal fluctuations in sales
Answer: (D) Seasonal fluctuations in sales
Source: ICSI Guideline Answers (answer key), December 2023, Q. 30 (Financial and Strategic Management paper, Syllabus 2017).
December 2023Q. 5(a)10 marksSyllabus 2022
Show the facts common to all parts of Q. 5
XYZ Ltd. is a company manufacturing standardized chandeliers. The segment they deal in is more or less an oligopolistic kind of market with mediocre market potential. The demand of their product had been wavering in past, but owing to increasing economic level of middle class in India, the board of directors is confident of brighter days in future. On 1st April, 2023, the board of directors of the company is desirous of knowing the amount of working capital that will be required to meet the planned level of operations during the year 2023-24. Following details have been provided in this regard :
Issued share capital :
₹ 2 Crore
10% Debentures
₹ 50 Lakh
Fixed Assets (1st April, 2023)
₹ 1.25 Crore
Production and sales during the year 2023-24 is expected to average out to 500 units per month. During the previous year, the ratios of cost to selling price, which are also likely to be maintained in current year as well, were as follows :
Raw Materials :
60%
Direct Wages
10%
Overheads :
20%
Following additional information has been provided in this regard :
(1)Raw materials and components are expected to remain in store for an average period of two months before being issued to assembly and production.
(2)Each unit of product is expected to be in process for 15 days.
(3)Finished goods stay in warehouse for an average period of 1 month before being dispatches to customers.
(4)Suppliers of raw material components extend an average credit of 1.5 month.
(5)80% sales are credit and though credit extended to customers is two months, average credit collection period is 75 days.
(6)On an average, overheads of 2 weeks remain outstanding.
(7)Selling price per unit is ₹ 5,000.
(8)Work-in-progress, cost involves 100% of material and 50% of labour and overheads.
(9)Sundry debtors to be valued at cash cost. Entire overhead cost is assumed to be cash cost. (10) One year is equal to 360 days or 52 weeks.
(11)Assuming production and sales follow a constant pattern. You are required to :
(a)Prepare an estimate of working capital required by the company for the ensuing year. Add 10% of your calculated figure for contingencies.
Statement of Estimated Working Capital by XYZ Ltd.
Particulars
Amount (Rs.)
Current Assets:
Inventory
Raw material
6000*3000*2/12
30,00,000
Work-in Process
6000*(3000+250+500)*15/360
9,37,500
Finished Goods
6000*(3000+500+1000)*1/12
22,50,000
61,87,500
Sundry Debtor
(6000*80%)*(3000+500+1000)*75/360
45,00,000
45,00,000
Total Current Assets
1,06,87,500
Less : Current Liabilities
Sundry Creditors
6000*3000*1.5/12
22,50,000
(22,50,000)
Outstanding Overheads
6000*1000*2/52
2,30,769
(2,30,769)
Balance
82,06,731
Add : 10% for contingencies
8,20,673
ESTIMATED WORKING CAPITAL REQUIRED
90,27,404
Working Notes
(i)Annual Production = 500x12=6000 Units
(ii)Per unit costs : Raw material= Rs.5000 x 60%= Rs.3000: Direct Wages= 5000x l0%=
Rs. 500 and Overhead= 5000x20%= Rs 1000.
Source: ICSI Guideline Answers, December 2023, Q. 5(a) (Syllabus 2022).
June 2023Q. 74 (CMA)1 markMCQCorporate and Management Accounting paper, Syllabus 2017
From the following, calculate the Debt- Equity Ratio : ₹ 10,000 Equity Shares @ 10 each 1,00,000 General Reserves 50,000 Debentures 75,000 Sundry Trade Creditors 37,500
(A)0.25 : 1
(B)0.375 : 1
(C)0.50 : 1
(D)0.75 : 1
Answer: (C) 0.50 : 1
Source: ICSI Guideline Answers (answer key), June 2023, Q. 74 (Corporate and Management Accounting paper, Syllabus 2017).
June 2023Q. 43 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
The aggressive working capital investment approach covers those policies, which :
(A)Invest high capital in current assets, keep inventory at higher level
(B)Follow liberal credit policies and higher cash balances
(C)Hold lower level of inventory and follow strict credit policies
(D)None of the above
Answer: (C) Hold lower level of inventory and follow strict credit policies
Source: ICSI Guideline Answers (answer key), June 2023, Q. 43 (Financial and Strategic Management paper, Syllabus 2017).
June 2023Q. 48 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Sales collection policy of a company is ‘‘20% sales are on cash, 50% of the credit sales are collected next month and the balance in the foll owing month’’, The Collection for the month of March will be :
(A)20% of Jan sales + 40% of February sales + 40% of March sales
(B)20% of February sales + 50% of January sales + 50% of March sales
(C)20% of March sales + 40% of January sales + 40% of February sales
(D)20% of March sales + 50% of January sales + 50% of February sales
Answer: (C) 20% of March sales + 40% of January sales + 40% of February sales
Source: ICSI Guideline Answers (answer key), June 2023, Q. 48 (Financial and Strategic Management paper, Syllabus 2017).
June 2023Q. 49 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Apollo Ltd. sells its products allowing a credit period of l5 days only. The average variable cost is 60% of sales value and current sales amount to ₹ 100 lakh. Dat a for the year is as follows :
Particulars
Current
Proposed
Credit Period
½
1
(Months)
Sales (lakh ₹)
100
120
Fixed Cost (lakh ₹)
15
8
Bad Debts (% sales)
1
1.5%
Debtors are calculated on cost price. Expected rate of return is 16%. Which one of the following is correct ?
(A)Incremental profit ₹ 3.50 lakh
(B)Incremental loss ₹ 3.50 lakh
(C)Incremental profit ₹ 4.20 lakh
(D)Incremental loss ₹ 4.20 lakh
Answer: (A) Incremental profit ₹ 3.50 lakh
Source: ICSI Guideline Answers (answer key), June 2023, Q. 49 (Financial and Strategic Management paper, Syllabus 2017).
June 2023Q. 50 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Which of the following statements is/are true ?
(A)When a firm relaxes the credit terms and offers cash discount for extended term, the profitability is sure to increase
(B)When a firm relaxes the credit terms and offers cash discount for extended term, the profitability is sure to increase if the sales increases
(C)When a firrn relaxes the credit terms and offers cash discount for extended term, the profitability is sure to increase if cash sales increases
(D)None of the above
Answer: (D) None of the above
Source: ICSI Guideline Answers (answer key), June 2023, Q. 50 (Financial and Strategic Management paper, Syllabus 2017).
June 2023Q. 51 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Which statement is true about terms of trade credit of 2/10, net 30 ?
(A)A 10% cash discount is offered for payment before 30 days
(B)A 2% cash discount can be taken for payment before the l0th of the following month
(C)A l0% cash discount can be taken if paid by the second day after invoicing
(D)No cash discount is offered from the eleventh day of sales
Answer: (D) No cash discount is offered from the eleventh day of sales
Source: ICSI Guideline Answers (answer key), June 2023, Q. 51 (Financial and Strategic Management paper, Syllabus 2017).
December 2022Q. 48 (CMA)1 markMCQCorporate and Management Accounting paper, Syllabus 2017
You are given with the following information :
Items
2020 (₹)
2021 (₹)
Building
50,000
66,000
Stock
80,000
90,000
Debtors
1,20,000
1,15,000
Cash
30,000
47,000
Total
2,80,000
3,18,000
Share Capital
2,00,000
2,50,000
Retained Earnings
10,000
23,000
Creditors
70,000
45,000
Total
2,80,000
3,18,000
The net change in working capital is :
(A)Net increase ₹ 47,000
(B)Net decrease ₹ 47,000
(C)Net decrease ₹ 52,000
(D)Net increase ₹ 52,000
Answer: (A) Net increase ₹ 47,000
Source: ICSI Guideline Answers (answer key), December 2022, Q. 48 (Corporate and Management Accounting paper, Syllabus 2017).
December 2022Q. 7 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Which of the following is not a dimension of liquidity management of firms ?
(A)Management of Cash and Marketable Securities
(B)Credit Policy Decision
(C)Management and Control of Inventories
(D)Investment in Fixed Assets
Answer: (D) Investment in Fixed Assets
Source: ICSI Guideline Answers (answer key), December 2022, Q. 7 (Financial and Strategic Management paper, Syllabus 2017).
December 2022Q. 48 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
The amount of working capital that is utilized at the time of contingencies is termed as :
(A)Reserve Margin Working Capital
(B)Irregular Working Capital
(C)Temporary Working Capital
(D)None of the above
Answer: (A) Reserve Margin Working Capital
Source: ICSI Guideline Answers (answer key), December 2022, Q. 48 (Financial and Strategic Management paper, Syllabus 2017).
December 2022Q. 50 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Which of the following statements is false in respect of Working Capital Leverage?
(A)It refers to the impact of level of working capital on company’s profitability
(B)It reflects the sensitivity of the return on capital employed in reference to the changes in level of current assets
(C)It expresses the relation of efficiency of working capital management with profitability of the firm
(D)All the above are correct
Answer: (D) All the above are correct
Source: ICSI Guideline Answers (answer key), December 2022, Q. 50 (Financial and Strategic Management paper, Syllabus 2017).
December 2022Q. 52 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
The current assets of a firm include Inventory of ₹ 124 Lakh, Receivables (including bills with bankers) of ₹ 80 Lakhs and Cash and Bank Balance of ₹ 4 Lakhs. Its total current liabilities are ₹ 140 Lakhs including bank borrowings of ₹ 60 Lakhs. What is the additional amount that the firm can borrow from bank for working capital in the light of method II of Tandon Committee ?
(A)₹ 21.60 Lakh
(B)₹ 32 Lakh
(C)₹ 38.40 Lakh
(D)None of the above
Answer: (D) None of the above
Source: ICSI Guideline Answers (answer key), December 2022, Q. 52 (Financial and Strategic Management paper, Syllabus 2017).
December 2022Q. 53 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
A firm is currently selling its goods on 30 days credit. It is selling 4 Lakh units @ ₹ 12.5 each. Variable cost is ₹ 10 per unit and average cost is ₹ 11.5 per unit. The firm is planning to double the credit period. It will increase the sales by 20% and bad debts by ₹ 20,000. If the pre-tax required rate of return of the company is 20%, what will be the impact on company’s profit if the policy is changed ? Assume a 365 days’ year.
(A)Profit will increase by ₹ 98,000 approx.
(B)Profit will increase by ₹ 78,000 approx.
(C)Profit will increase by ₹ 70,000 approx.
(D)Profit will decrease by ₹ 70,000 approx.
Answer: (B) Profit will increase by ₹ 78,000 approx.
Source: ICSI Guideline Answers (answer key), December 2022, Q. 53 (Financial and Strategic Management paper, Syllabus 2017).
December 2022Q. 57 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
X invested ₹ 21,000 in shares of a company five years back. During this tenure, he received dividend of ₹ 2,100 and ₹ 1,800 during 1st and 4th year. The current market value of his investment is ₹ 40,100. The total investment return of X is :
(A)18.57%
(B)3.71%
(C)109.52%
(D)90.95%
Answer: (C) 109.52%
Source: ICSI Guideline Answers (answer key), December 2022, Q. 57 (Financial and Strategic Management paper, Syllabus 2017).
June 2022Q. 72 (CMA)1 markMCQCorporate and Management Accounting paper, Syllabus 2017
The Budgeted Sales for the next 4 months are – ₹ 96,000; ₹ 1,44,000; ₹ 1,44,000 and ₹ 1,68,000 respectively. It is estimated that sales will be paid for as follows : 75% of the sales will be paid in the month in which sales were made. Of the balance, 50% will be paid in the month after the sales was made. The remaining 50% will be paid in the month after this. The amount of cash received in the 3rd month will be :
(A)₹ 1,38,000
(B)₹ 72,000
(C)₹ 1,62,000
(D)₹ 1,20,000
Answer: (A) ₹ 1,38,000
Source: ICSI Guideline Answers (answer key), June 2022, Q. 72 (Corporate and Management Accounting paper, Syllabus 2017).
June 2022Q. 27 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
The existing net working capital of a firm was ₹ 12,04,000. It repaid its creditors worth ₹ 1,40,000 by issuing them 3 year bonds and acquired a 5 year loan of ₹ 3 Lakh. Further, it redeemed its 8% debentures worth ₹ 2 Lakh by issuing 9% preference shares of equal amount. Which of the following is correct in the light of this information ?
(A)Net Working capital will increase by ₹ 1,40,000
(B)Net Working capital will decrease by ₹ 1,40,000
(C)There will be no change in Net Working Capital
(D)None of the above
Answer: (D) None of the above
Source: ICSI Guideline Answers (answer key), June 2022, Q. 27 (Financial and Strategic Management paper, Syllabus 2017).
June 2022Q. 28 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Which of the following is indicative of Aggressive Approach of Working Capital Management ?
(A)Holding low level of inventory
(B)Following Liberal Credit Policy
(C)Maintaining high cash balance
(D)All of the above
Answer: (A) Holding low level of inventory
Source: ICSI Guideline Answers (answer key), June 2022, Q. 28 (Financial and Strategic Management paper, Syllabus 2017).
June 2022Q. 29 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Which of the following methods is/are used to determine the working capital needed?
(A)Current Asset Holding Period
(B)Ratio to Sales
(C)Both (A) and (B)
(D)None of the above
Answer: (C) Both (A) and (B)
Source: ICSI Guideline Answers (answer key), June 2022, Q. 29 (Financial and Strategic Management paper, Syllabus 2017).
June 2022Q. 36 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
A invested ₹ 2 lakh in equity shares of a limited company in the beginning of 2020. So far, he has received ₹ 1 Lakh as dividend income. The current market price of his holdings is ₹ 3 Lakh. His total return is :
(A)50%
(B)100%
(C)33.33%
(D)None of the above
Answer: (B) 100%
Source: ICSI Guideline Answers (answer key), June 2022, Q. 36 (Financial and Strategic Management paper, Syllabus 2017).
June 2022Q. 56 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
DEF Ltd., a manufacturer of ball-point pens, is interested in knowing the Economic Order Quantity. It furnishes you the following information :
Annual Requirement : 40000 units
Cost per unit : ₹ 16
Carrying Cost 15% p.a.
Ordering Cost per order : ₹ 480
What will be its EOQ ?
(A)6000 units
(B)5000 units
(C)4000 units
(D)3000 units
Answer: (C) 4000 units
Source: ICSI Guideline Answers (answer key), June 2022, Q. 56 (Financial and Strategic Management paper, Syllabus 2017).
June 2022Q. 57 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Which of the following factors determine the credit policy of a firm ?
(A)Effect of credit period on volume of sales
(B)Credit Terms
(C)Cash Discount
(D)All of the above
Answer: (D) All of the above
Source: ICSI Guideline Answers (answer key), June 2022, Q. 57 (Financial and Strategic Management paper, Syllabus 2017).
December 2021Q. 5 (CMA)1 markMCQCorporate and Management Accounting paper, Syllabus 2017
Purchase goods of the list price of ₹ 25,000 from Mohan less 20% trade discount and 2% cash discount. The amount of cash discount is .................... .
(A)₹ 160
(B)₹ 240
(C)₹ 400
(D)₹ 500
Answer: (C) ₹ 400
Source: ICSI Guideline Answers (answer key), December 2021, Q. 5 (Corporate and Management Accounting paper, Syllabus 2017).
December 2021Q. 6 (CMA)1 markMCQCorporate and Management Accounting paper, Syllabus 2017
If the Company’s Issued Capital is more than the Authorized Capital, and approval of increase in Authorized Capital is pending, the amount of Share Application Money received over and above the Authorized Capital should be shown under the head :
(A)Other Current Liabilities
(B)Other Long-Term Liabilities
(C)Reserve and Surplus
(D)Short-Term Provision
Answer: (A) Other Current Liabilities
Source: ICSI Guideline Answers (answer key), December 2021, Q. 6 (Corporate and Management Accounting paper, Syllabus 2017).
December 2021Q. 1 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
A company would like to have liquid resources for trasaction purposes, as a precautionary measure and for .................
(A)Fiance opportunities
(B)Resource utilization
(C)Speculative opportunities
(D)Accumulation of future reserves
Answer: (C) Speculative opportunities
Source: ICSI Guideline Answers (answer key), December 2021, Q. 1 (Financial and Strategic Management paper, Syllabus 2017).
December 2021Q. 23 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Long term finance is required to finance :
(A)Fixed assets, variable part of working capital and expansion of business
(B)Fixed assets, permanent part of working capital and expansion of business
(C)Fixed assets and working capital
(D)Only fixed assets
Answer: (B) Fixed assets, permanent part of working capital and expansion of business
Source: ICSI Guideline Answers (answer key), December 2021, Q. 23 (Financial and Strategic Management paper, Syllabus 2017).
December 2021Q. 37 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
A company has sales of ₹ 20 crore and 40% of the sales is on credit. Expenses on credit collection is 1.50%. The company targets to reduce collection expenses by 40%. Calculate the expected saving target of the company.
(A)₹ 4.80 lakh
(B)₹ 7.20 lakh
(C)₹ 4.50 lakh
(D)₹ 7.80 lakh
Answer: (A) ₹ 4.80 lakh
Source: ICSI Guideline Answers (answer key), December 2021, Q. 37 (Financial and Strategic Management paper, Syllabus 2017).
December 2021Q. 38 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
The monthly requirement of raw material of A Ltd. is 1200 units, ordering cost is ₹ 400 per order and carrying cost is 13% of unit value of ₹ 150. EOQ units are :
(A)767 Units
(B)769 Units
(C)762 Units
(D)765 Units
Answer: (B) 769 Units
Source: ICSI Guideline Answers (answer key), December 2021, Q. 38 (Financial and Strategic Management paper, Syllabus 2017).
December 2021Q. 39 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Negative working capital implies that :
(A)Current Assets > Current Liabilities
(B)Current Assets = Current Liabilities
(C)Current Assets < Current Liabilities
(D)Current Assets > Fixed Assets
Answer: (C) Current Assets < Current Liabilities
Source: ICSI Guideline Answers (answer key), December 2021, Q. 39 (Financial and Strategic Management paper, Syllabus 2017).
December 2021Q. 41 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Find out the average size of receivables if the goods are sold for ₹ 10,00,000 on a net 60 credit term with an assumption that 25% of the customers do not pay within the prescribed time.
(A)₹ 2,50,000
(B)₹ 2,00,000
(C)₹ 2,08,333
(D)₹ 2,18,333
Answer: (C) ₹ 2,08,333
Source: ICSI Guideline Answers (answer key), December 2021, Q. 41 (Financial and Strategic Management paper, Syllabus 2017).
December 2021Q. 42 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Which of the following statements is not true?
(A)Management of working capital is an essential task of the finance manager
(B)Fluctuating working capital is needed to meet the seasonal requirements of the business
(C)A conservative current asset financing policy relies more on short term bank financing and less on long term sources.
(D)An aggressive current asset financing policy relies heavily on short term bank finance.
Answer: (C) A conservative current asset financing policy relies more on short term bank financing and less on long term sources.
Source: ICSI Guideline Answers (answer key), December 2021, Q. 42 (Financial and Strategic Management paper, Syllabus 2017).
June 2021Q. 91 (CMA)1 markMCQCorporate and Management Accounting paper, Syllabus 2017
The Budget sales for the next 4 quarter are – ₹ 1,92,000, ₹ 2,88,000, ₹ 2,88,000 and ₹ 3,36,000 respectively. It is estimated that sales will be paid for as follows: 75% of the sales will be paid in the quarter in which sales were made. Of the balance 50% will be paid in the quarter after the sales was made. The remaining 50% will be paid in the quarter after this. The amount of cash received in quarter 3rd will be .............
(A)2,76,000
(B)1,44,000
(C)3,24,000
(D)2,40,000
Answer: (A) 2,76,000
Source: ICSI Guideline Answers (answer key), June 2021, Q. 91 (Corporate and Management Accounting paper, Syllabus 2017).
June 2021Q. 46 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Credit term ‘4/20 net 90’ means :
(A)0.40% discount will be granted if the customer pays within 90 days
(B)20% discount will be granted if the customer pays within 4 days, and if he does not avail the offer he must make payment within 90 days
(C)Net 90% discount will be granted if the customer pays 4 times the amount due within 20 days
(D)4% discount will be granted if the customer pays within 20 days, otherwise he must make payment within 90 days
Answer: (D) 4% discount will be granted if the customer pays within 20 days, otherwise he must make payment within 90 days
Source: ICSI Guideline Answers (answer key), June 2021, Q. 46 (Financial and Strategic Management paper, Syllabus 2017).
June 2021Q. 47 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
According to William J. Baumol’s economic order quantity model with respect to cash management, optimum cash level is that level of cash where :
(A)Carrying costs are maximum and transactions costs are minimum
(B)Carrying costs and transactions costs are minimum
(C)Carrying costs and transactions costs are maximum
(D)Carrying costs are minimum and transactions costs are maximum
Answer: (B) Carrying costs and transactions costs are minimum
Source: ICSI Guideline Answers (answer key), June 2021, Q. 47 (Financial and Strategic Management paper, Syllabus 2017).
June 2021Q. 50 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Net working capital is equal to :
(A)Fixed Assets–Current Assets
(B)Current Assets–Current Liabilities
(C)Current Assets–Cash
(D)Long Term Loans–Short Term Loans
Answer: (B) Current Assets–Current Liabilities
Source: ICSI Guideline Answers (answer key), June 2021, Q. 50 (Financial and Strategic Management paper, Syllabus 2017).
December 2020Q. 1 (CMA)1 markMCQCorporate and Management Accounting paper, Syllabus 2017
Current Assets are those assets :
(A)Which can be converted into cash within 12 months
(B)Which can be converted into cash within a period normally not exceeding 12 months
(C)Which can be converted into cash within an operating cycle which normally does not exceed 12 months.
(D)Which are held for their conversion into cash within an operating cycle or a period of 12 months
Answer: (D) Which are held for their conversion into cash within an operating cycle or a period of 12 months
Source: ICSI Guideline Answers (answer key), December 2020, Q. 1 (Corporate and Management Accounting paper, Syllabus 2017).
December 2020Q. 39 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
What will be the operating cycle period if raw materials are in store for 2 months, processing time 2½ months finished goods remain in store for 15 days, debtors are allowed 60 days’ credit and credit received from suppliers of raw material is 1 month :
(A)7 months
(B)6 months
(C)6½ months
(D)5 months
Answer: (B) 6 months
Source: ICSI Guideline Answers (answer key), December 2020, Q. 39 (Financial and Strategic Management paper, Syllabus 2017).
December 2020Q. 40 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Current assets are twice the current liabilities. If the net working capital is ₹ 60,000, current assets would be :
(A)₹ 60,000
(B)₹ 1,00,000
(C)₹ 1,20,000
(D)₹ 1,10,000
Answer: (C) ₹ 1,20,000
Source: ICSI Guideline Answers (answer key), December 2020, Q. 40 (Financial and Strategic Management paper, Syllabus 2017).
December 2020Q. 43 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Efficiency of a credit control system does not get influenced by :
(A)Timely billing
(B)Accurate billing
(C)Compliance with the specified credit policy
(D)Cash discount availed by the customers
Answer: (D) Cash discount availed by the customers
Source: ICSI Guideline Answers (answer key), December 2020, Q. 43 (Financial and Strategic Management paper, Syllabus 2017).
December 2019Q. 25 (CMA)1 markMCQCorporate and Management Accounting paper, Syllabus 2017
H Ltd. is a holding company of S Ltd. During the year 2018-19, Bills Receivable amounted to ₹ 4,00,000, out of total bills receivable of ₹ 5,00,000 received from S Ltd., were discounted by H Ltd. and S Ltd. had endorsed to its creditors all the bills received from H Ltd. amounting to ₹ 3,00,000. At the end of the year the amount of mutual debtors will be :
(A)₹ 8,00,000
(B)₹ 3,00,000
(C)₹ 2,00,000
(D)₹ 1,00,000
Answer: (D) ₹ 1,00,000
Source: ICSI Guideline Answers (answer key), December 2019, Q. 25 (Corporate and Management Accounting paper, Syllabus 2017).
December 2019Q. 45 (CMA)1 markMCQCorporate and Management Accounting paper, Syllabus 2017
Mithu Ltd. had the investment as on 31-3-18 and 31-3-19 were ₹ 10,95,000 and ₹ 10,82,000 respectively. During the year interest on investment received ₹ 77,000 which was used in writing down the book value of investments. If there were some purchases of investment, then the cash flow from investment and from interest would be :
Source: ICSI Guideline Answers (answer key), December 2019, Q. 45 (Corporate and Management Accounting paper, Syllabus 2017).
December 2019Q. 70 (CMA)1 markMCQCorporate and Management Accounting paper, Syllabus 2017
N Ltd. has Net working capital of ₹ 119 Lakh, Total Liabilities ₹ 225 Lakh and Non-current liabilities are ₹ 140 Lakh. The Current Ratio will be :
(A)2.4 : 1
(B)1.85 : 1
(C)2.46 : 1
(D)1.15 : 1
Answer: (A) 2.4 : 1
Source: ICSI Guideline Answers (answer key), December 2019, Q. 70 (Corporate and Management Accounting paper, Syllabus 2017).
December 2019Q. 29 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
The Net Working Capital (NWC) of a firm is ₹ 14 Lakhs. It purchased ₹ 30 Lakhs worth of raw materials on credit, issued 7% debentures for ₹ 20 Lakhs, and purchased a machine for ₹ 18 Lakhs for cash. The new NWC of the firm will be:
(A)₹ 12 Lakhs
(B)₹ 16 Lakhs
(C)₹ 15 Lakhs
(D)₹ 10 Lakhs
Answer: (B) ₹ 16 Lakhs
Source: ICSI Guideline Answers (answer key), December 2019, Q. 29 (Financial and Strategic Management paper, Syllabus 2017).
December 2019Q. 38 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Determination of “safety stock” requires a trade-off between :
(A)Carrying costs and stock-out cost
(B)Ordering cost and carrying cost
(C)Ordering cost and stock-out cost
(D)Lead time and order point
Answer: (A) Carrying costs and stock-out cost
Source: ICSI Guideline Answers (answer key), December 2019, Q. 38 (Financial and Strategic Management paper, Syllabus 2017).
December 2019Q. 41 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Monthly demand for a raw material is 150 units. Ordering cost per order is ₹ 8 and annual carrying cost per unit is ₹ 2. Economic Order Quantity (EOQ) under the above circumstances will be :
(A)90
(B)120
(C)150
(D)180
Answer: (B) 120
Source: ICSI Guideline Answers (answer key), December 2019, Q. 41 (Financial and Strategic Management paper, Syllabus 2017).
December 2019Q. 47 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
The EOQ for a firm is 7200 units. The minimum order size stipulated by the supplier is 9000 units for utilizing a cash discount on the purchase price. The annual usage of the material in units is 80,000 and the cost per order is ₹ 100. If the company decides to utilize cash discount, savings in the total ordering cost will be :
(A)₹ 400
(B)₹ 500
(C)₹ 600
(D)₹ 700
ICSI did not treat any of the given options as correct.
ICSI's note: None of the option is correct. The correct answer is ₹ 222.22 or ₹ 300 [if we break the number of orders in fraction then in initial case it is 11.11 orders and ordering cost is ₹ 1111.11 but in later case it is 8.89 orders and ordering cost is ₹ 888.89. The difference of both is ₹ 222.22. Alternatively, if we ignore the fractions then in iniital case it is 12 orders and ordering cost is ₹ 1200 but in later case it is 9 orders and ₹ 900 is the ordering cost. Hence, the difference of the two is ₹ 300].
Source: ICSI Guideline Answers (answer key), December 2019, Q. 47 (Financial and Strategic Management paper, Syllabus 2017).
December 2018Q. 2(d) (FSM)3 marksFinancial and Strategic Management paper, Syllabus 2017
(d)The present credit term of X Ltd. are 1/10 net 30. Its annual sales are ₹ 40,00,000, its average collection period is 20 days. Its variable cost and average total costs to sales are 0.85 and 0.95 respectively and its cost of capital is 10%. The proportion of sales on which customers currently takes discount is 0.50.
X Ltd. is considering relaxing the discount terms to 2/10 net 30. Such relaxation is expected to increase sales by ₹ 5,00,000, reduce the average collection period to 14 days and increase the proportion of discount sales to 0.80. What will be the effect of relaxing the discount policy on company’s profit ? Take year as 360 days.
Increase in Revenue = Rs. 5,00,000
Increase in contribution (Rs. 5,00,000 * 15%) = Rs. 75,000
Investment in receivable
40,00,000 x 0.95 x 20
Existing
=
= Rs. 2,11,111
Proposed
=
= Rs. 1,64,306
Reduction in Investment x cost of capital
=
(Rs. 2,11,111 - Rs. 1,64,306) x 0.10
=
Rs. 4,681
Increase in discount
Present discount
=
Rs. 40,00,000 x 0.01 x 0.5 =
Rs. 20,000
Proposed discount
=
Rs. 45,00,000 x 0.02 x 0.8 =
Rs. 72,000
Difference in discount
Rs. 52,000
Net effect on profit/loss = (Rs. 75,000 + Rs. 4681)- Rs. 52,000 = Rs. 27,681
Since, the proposed discount policy will increase the profits of the company by Rs. 27,681. Therefore, it is advisable for the company to relax the present discount policy.
Source: ICSI Guideline Answers, December 2018, Q. 2(d) (Financial and Strategic Management paper, Syllabus 2017).
December 2018Q. 4(a) (FSM)8 marksFinancial and Strategic Management paper, Syllabus 2017
(a)X Ltd. plans to manufacture and sell 400 units of electronic appliances per month at a price of ₹ 600 each. The ratios of cost to selling price are as follows:
Raw Material
30%
Packing Material
10%
Direct Labour
15%
Direct Expenses
5%
Fixed overhead are estimated at ₹ 4,32,000 per annum.
The following norms are maintained for inventory management :
Raw Material
30 days
Packing Material
15 days
Finished goods
150 units
Work-in-progress
7 days
Other details are :
(a)Credit sales represent 80% of total sales and dealers enjoy 30 days credit.
(b)Creditors allow 21 working days credit for payment.
(c)Lag in payment of overhead and expenses are 15 working days.
(d)Cash requirement to be 10% of total current assets (excluding cash balance).
(e)Working days in year are taken as 300 days.
(f)Degree of completion is 100% for Raw Material and 50% of other expenses.
Calculate the net working capital required and the maximum permissible bank finance under second method of financing as per Tondon Committee norms.
Calculation of total cost of (400 x 12) 4800 units
Particulars
Amount (Rs.)
Raw material
30% x Rs. 600 x 4800 units
8,64,000
Packing material
10% x Rs. 600 x 4800 units
2,88,000
Direct labour
15% x Rs. 600 x 4800 units
4,32,000
Direct expenses
5% x Rs. 600 x 4800 units
1,44,000
Fixed overhead
4,32,000
Total cost
21,60,000
Total sales (4800 x Rs. 600)
28,80,000
Profit
7,20,000
Current Assets
Particulars
Rs.
Rs.
Raw material Rs. 8,64,000 x 30/300
Rs. 86,400
Packing material Rs. 2,88,000 x 15/300
Rs. 14,400
Work in progress
Raw material (100%)
8,64,000 x 7/300
Rs. 20,160
Direct Labour (50%)
4,32,000 x 7/300 x 50%
Rs. 5,040
Direct Expenses (50%)
1,44,000 x 7/300 x 50%
Rs. 1,680
Fixed Overhead (50%)
4,32,000 x 7/300 x 50%
Rs. 5,040
Rs. 31,920
Finished goods
Rs. 21,60,000 x 150/4800
Rs. 67,500
Debtors
4800 x 600 x 80% x 30/300
Rs. 2,30,400
Total current assets (without cash)
Rs. 4,30,620
Cash balance
Rs. 43,062
Total Current Assets (A)
Rs. 4,73,682
Current liabilities
Particulars
Rs.
Rs.
Creditors for Raw Material
8,64,000 x 21/300
60,480
Creditors for Packing Material
2,88,000 x 21/300
20,160
Direct Expenses
1,44,000 x 15/300
7,200
Fixed Overhead
4,32,000 x 15/300
21,600
Total Current liabilities (B)
1,09,440
Net Working Capital (A)-(B)
3,64,242
Maximum permissible bank finance under second method of financing as per Tandon Committee norms
Rs.
Total Current Assest
4,73,682
Less : 25% of current assets
(1,18,421)
3,55,261
Less : Current liabilities
(1,09,440)
Maximum permissible bank borrowings
2,45,821
calculated at cost price.
Source: ICSI Guideline Answers, December 2018, Q. 4(a) (Financial and Strategic Management paper, Syllabus 2017).
December 2024Q. 50 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
For a product- ‘A’, following information is available :
Maximum consumption per week : 300 units
Normal consumption per week : 200 units
Reorder period : 2 to 5 weeks
The reorder level will be :
(A)400 units
(B)1200 units
(C)600 units
(D)1500 units
Answer: (D) 1500 units
Source: ICSI Guideline Answers (answer key), December 2024, Q. 50 (Financial and Strategic Management paper, Syllabus 2017).
December 2024Q. 51 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Economic Order Quantity (EOQ) determines :
(A)The order size that minimize the total inventory cost
(B)The order size which will earn discounts on purchase
(C)The order size where ordering cost is the lowest
(D)The order size where the carrying cost is minimum
Answer: (A) The order size that minimize the total inventory cost
Source: ICSI Guideline Answers (answer key), December 2024, Q. 51 (Financial and Strategic Management paper, Syllabus 2017).
December 2024Q. 52 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Following information is given for Component ‘X’ :
Normal usage 100 units per week, maximum usage 125 units per week, reorder period 4 to 6 weeks. The minimum level of stock will be :
(A)200 units
(B)150 units
(C)450 units
(D)250 units
Answer: (D) 250 units
Source: ICSI Guideline Answers (answer key), December 2024, Q. 52 (Financial and Strategic Management paper, Syllabus 2017).
December 2024Q. 6(d)5 marksSyllabus 2022
(d)Calculate Economic Order Quantity from the following details and also state the number of orders to be placed in a year :
Consumption of materials per annum
50,000 kg
Order placing cost per order
125/-
Cost per unit of raw material
10/-
Storage Costs
5% on average inventory
Economic Order Quantity
√(2 x R x C )/C p h
Economic Order Quantity
√(2 x 50,000 x 125)/(5% x 10) = 5,000 units
Number of Orders per annum
= 50,000/5,000 = 10 orders
Consumption of materials per annum
R
Ordering Cost per order
C p
Holding Costs/Storage Cost
C h
Source: ICSI Guideline Answers, December 2024, Q. 6(d) (Syllabus 2022).
June 2024Q. 58 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
A firm has inventory turnover of 4 and cost of goods sold is ₹ 7,50,000. With better inventory management, the inventory turnover is increased to 6. This would result in :
(A)Increase in average inventory
(B)Decrease in average inventory
(C)Decrease in cost of goods sold
(D)Increase in cost of goods sold
Answer: (B) Decrease in average inventory
Source: ICSI Guideline Answers (answer key), June 2024, Q. 58 (Financial and Strategic Management paper, Syllabus 2017).
Re-order Level – (Normal Usage x Normal Re-order Period)
A
B
Units
27,000 - (3,000 x 5) = 12,000
18,000 - (3,000 x 3) = 9,000
Average Inventory
Minimum Level + ½ Re-order Quantity
A
B
Units
12,000 + ½ of 20,000 = 22,000
9,000 + ½ of 40,000 = 29,000
Average Inventory
(Minimum Level + Maximum Level)/2
A
B
Units
(12,000+41,000)/2 = 26,500
(9,000+55,000)/2 =32,000
Source: ICSI Guideline Answers, June 2024, Q. 6(c) (Syllabus 2022).
June 2023Q. 46 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Quarterly consumption of materials : 2,000 kg; Cost of placing an order : ₹ 50; Cost per unit : ₹ 40; Storage and other carrying costs : 8% of average inventory cost. Economic order quantity and number of orders to be placed per quarter of the year will be :
(A)400 kg and 5 orders
(B)400 kg and 20 orders
(C)500 kg and 4 orders
(D)500 kg and 16 orders
Answer: (C) 500 kg and 4 orders
Source: ICSI Guideline Answers (answer key), June 2023, Q. 46 (Financial and Strategic Management paper, Syllabus 2017).
December 2022Q. 62 (CMA)1 markMCQCorporate and Management Accounting paper, Syllabus 2017
Which of the following techniques of material control analyses items of material based on their criticality to production ?
(A)Inventory Issue System
(B)Material Turnover Ratios
(C)ABC Analysis
(D)VED Analysis
Answer: (D) VED Analysis
Source: ICSI Guideline Answers (answer key), December 2022, Q. 62 (Corporate and Management Accounting paper, Syllabus 2017).
December 2022Q. 11 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Economic Order Quantity of a product is 3000 units. Its cost per unit is ₹ 1.50 and ordering cost is ₹ 18 per order. If the carrying cost per annum is 20% per annum for average inventory value, annual consumption in units is :
(A)50000 units
(B)60000 units
(C)75000 units
(D)90000 units
Answer: (C) 75000 units
Source: ICSI Guideline Answers (answer key), December 2022, Q. 11 (Financial and Strategic Management paper, Syllabus 2017).
December 2022Q. 51 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
The per unit total cost of a company’s product is ₹ 60 including Raw Materials ₹ 30, Direct Labour ₹ 7.5 and Overheads of ₹ 22.5. The company is planning to produce 4,00,000 units in the ensuing year. If the inventory policy of the company envisages that raw materials stock averages two months consumption, work-inprocess investment averages half a month’s production and finished goods inventory averages one month consumption, the average investment in inventory of the firm for the ensuing year will be :
(A)₹ 30,00,000
(B)₹ 25,00,000
(C)₹ 45,00,000
(D)₹ 50,00,000
ICSI did not treat any of the given options as correct.
Source: ICSI Guideline Answers (answer key), December 2022, Q. 51 (Financial and Strategic Management paper, Syllabus 2017).
June 2022Q. 30 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Following financials pertain to ABC Ltd. for the year ended 31/03/2021:
(vi)Purchase of Raw Metarial-Average amount/day : ₹ 2,400
(vii)Cost of Sales-Average amount/day : ₹ 3,000
(viii)Sales-Average amount/day : ₹ 5,000
Operating Cycle of ABC Ltd. is :
(A)190 days
(B)185 days
(C)186 days
(D)195 days
ICSI did not treat any of the given options as correct.
Source: ICSI Guideline Answers (answer key), June 2022, Q. 30 (Financial and Strategic Management paper, Syllabus 2017).
June 2022Q. 31 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Which one of the following will not help in lowering the cost of inventory ?
(A)Entering into short-term arrangements for supply of materials at market driven prices
(B)Arranging for direct supply of Raw Materials at manufacturing locations
(C)Promoting ex-factory sales of finished goods
(D)Availing quantity discounts and spot payment discounts if carrying costs and financing costs are less than discounts
Answer: (A) Entering into short-term arrangements for supply of materials at market driven prices
Source: ICSI Guideline Answers (answer key), June 2022, Q. 31 (Financial and Strategic Management paper, Syllabus 2017).
June 2022Q. 55 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Which of the following is not an assumption of EOQ Model ?
(A)Total usage of the commodity for the given period is known with certainty and the usage is spreaded evenly throughout the period
(B)There is sufficient gap between placing the order and receiving the supply
(C)The cost per order of commodity is constant irrespective of the number of total orders
(D)Carrying cost of the inventory is given as a percentage of the value of inventory and is fixed
Answer: (B) There is sufficient gap between placing the order and receiving the supply
Source: ICSI Guideline Answers (answer key), June 2022, Q. 55 (Financial and Strategic Management paper, Syllabus 2017).
June 2021Q. 48 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Determine the economic order quantity from the following figures :
(i)Annual requirement of inventory 1,00,000 units
(ii)Cost per unit (other than carrying and ordering cost) ₹ 20
(iii)Carrying cost are likely to be 10% per year
(iv)Cost of placing order ₹ 1,000 per order
(A)10,000 Units
(B)1,000 Units
(C)2,000 Units
(D)5,000 Units
Answer: (A) 10,000 Units
Source: ICSI Guideline Answers (answer key), June 2021, Q. 48 (Financial and Strategic Management paper, Syllabus 2017).
December 2020Q. 38 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
The following details are available in respect of a firm : Annual requirement of inventory 20,000 units, Cost per unit (other than carrying and ordering cost) is ₹ 10, Carrying cost are likely to be 10% per year, Cost of placing an order is ₹ 500 per order. The economic ordering quantity is :
(A)4472 Units
(B)4274 Units
(C)5270 Units
(D)4760 Units
Answer: (A) 4472 Units
Source: ICSI Guideline Answers (answer key), December 2020, Q. 38 (Financial and Strategic Management paper, Syllabus 2017).
December 2020Q. 42 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Source: ICSI Guideline Answers (answer key), December 2020, Q. 42 (Financial and Strategic Management paper, Syllabus 2017).
December 2019Q. 31 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
ABC analysis is useful for :
(A)analyzing inventory based on their usage and movement
(B)reduction of total investment in material
(C)determining the optimal level of safety stock
(D)analyzing inventory based on their availability
Answer: (A) analyzing inventory based on their usage and movement
Source: ICSI Guideline Answers (answer key), December 2019, Q. 31 (Financial and Strategic Management paper, Syllabus 2017).
December 2019Q. 39 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Which of the following is not a valid assumption of EOQ model ?
(A)Demand forecast is available
(B)Inventory can be replenished immediately
(C)Cost per order is variable
(D)Carrying cost is a fixed percentage
Answer: (C) Cost per order is variable
Source: ICSI Guideline Answers (answer key), December 2019, Q. 39 (Financial and Strategic Management paper, Syllabus 2017).
December 2019Q. 60 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Economic Order Quantity (EOQ) determines :
(A)The order size that minimize the total inventory cost.
(B)The order size where ordering cost is the lowest.
(C)The order size where the carrying cost is minimum.
(D)The order size which will earn discounts on purchase.
Answer: (A) The order size that minimize the total inventory cost.
Source: ICSI Guideline Answers (answer key), December 2019, Q. 60 (Financial and Strategic Management paper, Syllabus 2017).
June 2019Q. 2(c) (FSM)3 marksFinancial and Strategic Management paper, Syllabus 2017
(c)A product requires 40 types of material every day for its manufacturing. A fixed cost of ₹ 50 per order is incurred for placing an order. The inventory carrying cost for each material is ₹ 0.02 per day. The lead period is 50 days. Assume 365 days in a year. Calculate the following :
(i)Economic Order Quantity (EOQ)
(ii)Re-order Level (ROL).
(i) Annual Consumption (A)=
40 types of material x 365 days
=
14,600 types of material
Fixed Cost per order or ordering cost (O) = ₹ 50 Carrying Cost (C) = 0.02 x 365 days = ₹ 7.30 Economic Order Quantity (EOQ) = (2AO/C)
A
=
Annual Consumption = 14,600 types of material
O
=
Ordering Cost per order = ₹ 50
C
=
Carrying Cost = ₹ 7.30
EOQ
=
(2x14,600 x 50 / 7.30 = 447.21
(ii) Re-order level (ROL)=
Maximum Usage per day x lead time
=
40 types of material per day x 50 days
=
2000 types of material
Source: ICSI Guideline Answers, June 2019, Q. 2(c) (Financial and Strategic Management paper, Syllabus 2017).
December 2018Q. 2(b) (FSM)3 marksFinancial and Strategic Management paper, Syllabus 2017
(b)Calculate Reorder level, Minimum level and Average stock level from the following information of X Ltd. :
Normal usage
50 units per week
Minimum usage
25 units per week
Maximum usage
75 units per week
Re-order quantity
300 units
Re-order period 4 to 6 weeks
Reorder Level =
(Maximum Usage * Maximum Delivery Time)
=
75 * 6 = 450 units
Minimum Level =
Reorder Level – (Normal Usage * Average Delivery Time)
=
450 – (50 * 5)
=
200 units
Average Stock Level
=
Minimum Level + (Reorder Quantity/2)
=
200 + (300/2)
=
350 units
Source: ICSI Guideline Answers, December 2018, Q. 2(b) (Financial and Strategic Management paper, Syllabus 2017).
June 2023Q. 49 (CMA)1 markMCQCorporate and Management Accounting paper, Syllabus 2017
Cash collected from debtors is.............
(A)Credit sales (+) Decrease in Account Receivable or ( – ) Increase in Account Receivable
(B)Credit sales ( – ) Decrease in Account Receivable or (+) Increase in Account Receivable
(C)Cash sales (+) Decrease in Account Receivable or ( – ) Increase in Account Receivable
(D)Cash sales ( – ) Decrease in Account Receivable or (+) Increase in Account Receivable
Answer: (A) Credit sales (+) Decrease in Account Receivable or ( – ) Increase in Account Receivable
Source: ICSI Guideline Answers (answer key), June 2023, Q. 49 (Corporate and Management Accounting paper, Syllabus 2017).
June 2022Q. 2 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Liquidity of Receivables is assessed through which of the following :
(A)Average Collection Period
(B)Receivables Turnover Ratio
(C)Both (A) and (B)
(D)None of the above
Answer: (C) Both (A) and (B)
Source: ICSI Guideline Answers (answer key), June 2022, Q. 2 (Financial and Strategic Management paper, Syllabus 2017).
June 2021Q. 44 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
What do you understand by the term ‘factoring’ with respect to management of accounts receivable ?
(A)Use of accounts receivables as prime collateral for a secured loan
(B)Pledging of accounts receivables to a lender
(C)Outright sale of accounts receivables to a financial agency
(D)Encashing accounts receivable before closure of accounts
Answer: (C) Outright sale of accounts receivables to a financial agency
Source: ICSI Guideline Answers (answer key), June 2021, Q. 44 (Financial and Strategic Management paper, Syllabus 2017).
December 2020Q. 26 (CMA)1 markMCQCorporate and Management Accounting paper, Syllabus 2017
A balance sheet has two parts to it, i.e.
I.Equity and Liabilities and
II. ........................................
(A)Shareholder’s fund
(B)Trade receivables
(C)Inventories
(D)Assets
Answer: (D) Assets
Source: ICSI Guideline Answers (answer key), December 2020, Q. 26 (Corporate and Management Accounting paper, Syllabus 2017).
December 2019Q. 45 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Consider the following data and compute the total sales amount :
(i)Closing balance of receivables : ₹ 30 lakhs
(ii)Opening balance of receivables : ₹ 20 lakhs
(iii)Average collection period : 25 days
(iv)Credit sales are 73% of sales (assume 365 days in a year)
(A)₹ 365 lakhs
(B)₹ 500 lakhs
(C)₹ 550 lakhs
(D)₹ 730 lakhs
Answer: (B) ₹ 500 lakhs
Source: ICSI Guideline Answers (answer key), December 2019, Q. 45 (Financial and Strategic Management paper, Syllabus 2017).
June 2019Q. 6(d) (CMA)5 marksCorporate and Management Accounting paper, Syllabus 2017
(d)You have applied for the position of Assistant Company Secretary in Sashvati Ltd. As part of the pre-interview scanning, the following information has been provided to you :
Sales
₹ 1,825 lakh
Net Worth to Sales
90%
Current Liabilities to Net Worth
20%
Total Debt to Net Worth
50%
Receivables average collection period
44 Days
Inventory Turnover (Based on Cost of Goods Sold)
4.839 Times
Number of days in a year
365
Ratio of inventory, receivables and cash & bank balance in current assets
3:2:1
Cash sales are 1/4th of credit sales
As part of scanning exercise, you are required to calculate and inform to the interviewer, following values :
(1)Non-current debt (as per the Companies Act, 2013),
(2)Receivables,
(3)Current assets, and
(4)Cost of goods sold.
(1)Non-current Debt
Net worth = 90% of sales of Rs. 1825 lakh = Rs. 1642.50 lakh
Current liabilities = 20% of the Net worth of Rs. 1642.50 lakh = Rs. 328.50 lakh
Total debt = 50% of Net worth of Rs. 1642.50 lakh = Rs. 821.25 lakh
Hence, Non current debt = Rs. 821.25 lakh – Rs. 328.50 lakh = Rs. 492.75 lakh
(2)Receivables
Collection period = (Receivables * 365)/ Credit sales
or Receivables = (Collection period * Credit sales)/365= (44* Rs. 1460 lakh)/
Source: ICSI Guideline Answers, June 2019, Q. 6(d) (Corporate and Management Accounting paper, Syllabus 2017).
December 2023Q. 29 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Maximum permissible bank finance as per the first method of Tandon Committee norms was ₹ 57,41,813 while current liabilities are reported at ₹ 32,50,000. Current assets = ?
(A)10905750
(B)9905720
(C)10907550
(D)10509750
Answer: (A) 10905750
Source: ICSI Guideline Answers (answer key), December 2023, Q. 29 (Financial and Strategic Management paper, Syllabus 2017).
June 2023Q. 45 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Tandon Committee recommendations aims that the dependence of industry on bank finance should gradually :
(A)Decrease
(B)Remain Stable
(C)Increase
(D)None of the above
Answer: (A) Decrease
Source: ICSI Guideline Answers (answer key), June 2023, Q. 45 (Financial and Strategic Management paper, Syllabus 2017).
December 2022Q. 40 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Which of the following is not a principle on which bank lending must necessarily be based ?
(A)Safety
(B)Liquidity
(C)Profitability
(D)Risk Neutralization
Answer: (D) Risk Neutralization
Source: ICSI Guideline Answers (answer key), December 2022, Q. 40 (Financial and Strategic Management paper, Syllabus 2017).
December 2021Q. 27 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Lending policy and appraisal norms by banks are decided by the ....................
(A)Reserve Bank of India
(B)Government of India
(C)Financial Institutions
(D)Prime Minister of India
Answer: (A) Reserve Bank of India
Source: ICSI Guideline Answers (answer key), December 2021, Q. 27 (Financial and Strategic Management paper, Syllabus 2017).
June 2021Q. 45 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Calculate maximum permissible bank finance (MPBF) as per first method suggested by the Tandon Committee, from the information given below :
Particulars
Amount ( ₹ lakhs)
Creditors
150
Other current liabilities
50
Debenture
400
Finished goods
500
Receivables
150
Other current assets
150
(A)₹ 150 Lakhs
(B)₹ 200 Lakhs
(C)₹ 350 Lakhs
(D)₹ 450 Lakhs
Answer: (D) ₹ 450 Lakhs
Source: ICSI Guideline Answers (answer key), June 2021, Q. 45 (Financial and Strategic Management paper, Syllabus 2017).
December 2020Q. 41 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Concept of Maximum Permissible Bank financial was introduced by :
(A)Kannan Committee
(B)Chore Committee
(C)Nayak Committee
(D)Tandon Committee
Answer: (D) Tandon Committee
Source: ICSI Guideline Answers (answer key), December 2020, Q. 41 (Financial and Strategic Management paper, Syllabus 2017).
December 2019Q. 27 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
An arrangement where a bank allows a borrower to overdraw up to a certain limit for working capital financing is known as :
(A)Bridge Loan
(B)Cash Credit
(C)Term Loan
(D)Leverage Buy Out
Answer: (B) Cash Credit
Source: ICSI Guideline Answers (answer key), December 2019, Q. 27 (Financial and Strategic Management paper, Syllabus 2017).
June 2023Q. 47 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
An asset is not classified as current when :
(A)The asset is held primarily for the purpose of trading activities
(B)It is not cash equivalent
(C)It is expected to be realized within twelve months after the reporting period
(D)It is expected to be realized or intends to be sold or consumed in normal operating cycle of the entity
Answer: (B) It is not cash equivalent
Source: ICSI Guideline Answers (answer key), June 2023, Q. 47 (Financial and Strategic Management paper, Syllabus 2017).
December 2021Q. 40 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
A company has Raw material holding period- 27 days; Conversion period-25 days; Finished goods holding period-28 days; Period of accounts receivables- 20 days; Period of accounts payable - three fourth of accounts recievables; operating cycle period will be :
(A)65 days
(B)75 days
(C)80 days
(D)85 days
Answer: (D) 85 days
Source: ICSI Guideline Answers (answer key), December 2021, Q. 40 (Financial and Strategic Management paper, Syllabus 2017).
June 2021Q. 49 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Net Operating Cycle (NOC) can be defined as sum of :
(A)Raw Material, W.I.P. and Finished Goods Conversion period
(B)Raw Material, W.I.P., Finished Goods and Receivables Conversion period
(C)Inventory Plus Receivables Conversion period minus Deferral period
(D)None of the above
Answer: (B) Raw Material, W.I.P., Finished Goods and Receivables Conversion period
Source: ICSI Guideline Answers (answer key), June 2021, Q. 49 (Financial and Strategic Management paper, Syllabus 2017).
December 2019Q. 32 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Consider the following factors — Gross operating cycle – 80 days; Net operating cycle – 55 days; Raw material holding period – 40 days, Conversion period – 2 days; Finished goods holding period – 20 days; Average collection period will be:
(A)87 days
(B)37 days
(C)18 days
(D)62 days
Answer: (C) 18 days
Source: ICSI Guideline Answers (answer key), December 2019, Q. 32 (Financial and Strategic Management paper, Syllabus 2017).
June 2024Q. 45 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Which of the following is not one of the key motives of holding cash be a firm ?
(A)Forecasting motive
(B)Transactional motive
(C)Speculative motive
(D)Contingency motive
Answer: (A) Forecasting motive
Source: ICSI Guideline Answers (answer key), June 2024, Q. 45 (Financial and Strategic Management paper, Syllabus 2017).
December 2022Q. 54 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Which of the following is not an example of transactional motive of holding cash?
(A)Purchase of Raw Materials and Components
(B)Payment of Salaries and Wages
(C)Purchase of Fixed Assets
(D)None of the above
Answer: (D) None of the above
Source: ICSI Guideline Answers (answer key), December 2022, Q. 54 (Financial and Strategic Management paper, Syllabus 2017).
December 2020Q. 37 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
The annual cash requirement of A Ltd. is ₹ 25 lakh. Cost of conversion of marketable securities per lot is ₹ 2,500. The company can earn 5% annual yield on its securities. What will be the economic lot size according to the Baumol Model ?
(A)₹ 1,00,000
(B)₹ 2,50,000
(C)₹ 5,00,000
(D)₹ 4,75,000
Answer: (C) ₹ 5,00,000
Source: ICSI Guideline Answers (answer key), December 2020, Q. 37 (Financial and Strategic Management paper, Syllabus 2017).
December 2019Q. 49 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
Cash Management Model has been propounded by :
(A)Lintner
(B)Walter
(C)Baumol
(D)Gordon
Answer: (C) Baumol
Source: ICSI Guideline Answers (answer key), December 2019, Q. 49 (Financial and Strategic Management paper, Syllabus 2017).
December 2023Q. 23 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017
A Factoring firm has credit sales of ₹ 300 lakhs and its average collection period is 36 days. The financial controller estimates bad debt losses are around 2% of credit sales. The firm spends ₹ 1,50,000 annually on debtor’s administration. This cost comprises of telephonic and fax bills along with salaries of staff members. These are the avoidable costs. A Factoring firm has offered to buy the firm’s receivables. The factor will charge 1% commission and will pay an advance against receivables on an interest @ 12% p.a. after withholding 10% as reserve. What is the approx. Net annual benefit of factoring to the firm in rupees ? Ignore capital cost.
(A)(1,73,400)
(B)1,73,400
(C)(1,56,000)
(D)1,26,000
Answer: (D) 1,26,000
Source: ICSI Guideline Answers (answer key), December 2023, Q. 23 (Financial and Strategic Management paper, Syllabus 2017).
June 2019Q. 2A(ii) (FSM)5 marksFinancial and Strategic Management paper, Syllabus 2017
(ii)The total turnover of X Ltd. is ₹ 50 lakhs of which 72% is on credit. Debtors are allowed one month to clear off the dues. A factoring company is willing to advance 80% of the bill raised on credit for a fee of 2% a month plus a commission of 10% on the total amount of debts. X Ltd., as a result of this arrangement, is likely to save ₹ 48,000 annually in management cost and avoid bad debts @ 1% on the credit sales.
A bank has come forward to make an advance equal to 80% of the debts at an annual interest rate of 15%. However, its processing fees will be @ 2% on the debts. Would you accept factoring or the offer from the bank ?
Cost of Factoring
Annual Credit Sales
₹ 50,00,000 x 72 %
₹ 36 lakhs
Monthly Credit Sales
₹ 36 lakhs/12
₹ 3 lakhs
Factor Cost
Fee ( ₹ 3,00,000 x 80%) x 2%
₹ 4,800
Commission ₹ 3,00,000 x 10%
₹ 30,000
(A)₹ 34,800 Less : Savings in Cost:
Management Cost ( ₹ 48,000/12)
₹ 4,000
Savings in Bad Debts ( ₹ 3,00,000 x 1 %)
₹ 3,000
(B)₹ 7,000
Net Cost of Factoring (per month)
(A-B)
₹ 27,800
Cost of Bank Advance
Interest ( ₹ 3,00,000 x 80% x 15%) ÷12
₹ . 3,000
Processing Fee ( ₹ 3,00,000 x 2%)
₹ 6,000
Bad Debts ( ₹ 3,00,000 x 1%)
₹ 3,000
Management Cost
₹ 4,000
Net Cost (Per Month)
₹ 16,000
Since cost of Bank Finance is less than the cost of factoring, therefore, it is advisable to accept bank offer.
Source: ICSI Guideline Answers, June 2019, Q. 2A(ii) (Financial and Strategic Management paper, Syllabus 2017).
June 2019Q. 3(a) (FSM)5 marksFinancial and Strategic Management paper, Syllabus 2017
Differentiate between the following :
(a)Forfaiting and Export Factoring
Forfaiting and Export Factoring
Forfaiting is similar to cross border factoring or export factoring to the extent both have common features of non recourse and advance payment. But they differ in several important respects:
a.A forfaiter discounts the entire value of the note/bill but the factor finances between 75-85% and retains a factor reserve which is paid after maturity.
b.The availing bank which provides an unconditional and irrevocable guarantee is a critical element in the Forfaiting arrangement whereas in a factoring deal, particularly non-recourse type, the export factor bases his credit decision on the credit standards of the exporter.
c.Forfaiting is a pure financing arrangement while factoring also includes ledger administration, collection and so on.
d.Factoring is essentially a short term financing deal. Forfaiting finances notes/ bills arising out of deferred credit transaction spread over three to five years.
e.A factor does not guard against exchange rate fluctuations; a forfaiter charges a premium for such risk.
Source: ICSI Guideline Answers, June 2019, Q. 3(a) (Financial and Strategic Management paper, Syllabus 2017).
June 2024, Q. 11 (CMA) · In case of the issue of debentures as collateral securities the holder is entitled to : (Ch. 5)
June 2023, Q. 30 (CMA) · Following are the data extracted from the financial statement of ABC Limited: (Ch. 8)
June 2022, Q. 40 (CMA) · Cash inflow before working capital changes is ₹ 12,00,000, decrease in inventory is ₹ 1,50,000, increase in receivables position is ₹ 2,00,0… (Ch. 9)
December 2021, Q. 49 (CMA) · ABC Ltd. issued 1,00,000 equity shares of ₹ 100 each, payable as under : (Ch. 4)
June 2021, Q. 3 (CMA) · Cash Inflow before working capital changes is ₹ 4,80,000, decrease in inventory is ₹ 60,000, increase in receivables position is ₹ 80,000 an… (Ch. 9)