MS41 Working capital management 2023



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Important announcement: (Last date of submission for January 2023 session is 30th April, 2023 and for July 2023 sessions is 31st October, 2023)

1. Discuss the various factors that you would take into consideration before assessing the working capital requirements

2. You are required to prepare a Cash Budget of XYZ Ltd. for the months April, 2023 to July, 2023 (four months) from the details given below:
(a) Estimated sale during 2023 (Rs.)
Feb. March April May June July Aug.
12,00,000 12,00,000 16,00,000 20,00,000 18,00,000 16,00,000 14,00,000

b) On an average 20% of sales are cash sales. The credit sales are realized in the third month (January sales in March).
c) Purchases amount to 60% of sales.
d) Variable expenses (other than sales commission) constitute 10% of sales and there is a time lag of half a month in these payments.
e) Commission on sales is paid at 5% of sales value and payment is made in the third month.
f) Fixed expenses per month amount to Rs. 75,000 approximately.
g) Other items anticipated: Due
Interest payable on deposits Rs. 1,60,000 (April, 2023)
Sales of old assets Rs. 1,25,000 (May, 2023)
Payments of tax Rs. 80,000 (June, 2023)
Purchase of fixed assets Rs. 6,50,000 (July, 2023)
h) Opening cash balance Rs. 1,50,000

3. As a Finance Manager, which sources you would prefer to raise short term loans from the money market for meeting working capital needs of your business and why?

4. The Balance Sheet of Alpha Co. Ltd. is as given below.
Balance Sheet of Alpha Co. Ltd. as on 31 st March 2023

Assets Rs. lakhs Liabilities Rs. lakhs
Fixed assets 1,000 Equity shares of Rs. 400
10 each
Current assets: Retained earnings 400
Raw materials 200 11% Debentures 600
Work-in-progress 300 Public deposits 200
Finished goods 150 Trade Creditors 160
Debtors 200 Bills payable 200
Cash at bank 110 960
Total 1,960 Total 1,960

You are required to calculate the amount of maximum permissible bank finance by all three methods for working capital as per Tandon Committee Norms. Assume the level of core current assets to be Rs. 60 lakhs. Calculate the current ratios as recommended by the committee, assuming that the bank has granted MPBF.

5. If you are finance manager of an MNC, what circumstances would you consider using Eurocurrency markets? Also explain why you have selected these markets instead of borrowing from domestic markets.

July 2022

Q1. Discuss the Role of Central Bank in designing and implementing monetary and credit policy. What are the important policy measures announced as a part of the latest credit policy.
Q2. You are to prepare Cash Flow Statement from the Balance Sheets of alpha Ltd.

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Additional information
(i) Depreciation is charged on building at 3 percent of cost of Rs. 9,00,000 on plant; machinery at 8 percent of cost Rs. 4,00,000 and fixtures & fittings at 5 percent of cost Rs. 8,000.
(ii) Interest received Rs. 3,000 on investments was used in writing down the book value of investments.
(iii) Dividends declared for 2020 was paid and interim dividend of Rs. 20,000 was paid out of Profit & Loss Appropriation Account.

Q3. What is a Commercial Paper (CP)? Discuss the terms and conditions laid down by companies for issuing CP. Describe the procedure followed in India for issuing commercial paper.

Q4. If you are a manager of an MNC, under what circumstances would you consider using Euro-Currency markets? What advantages or disadvantages these markets would offer compared to borrowing from domestic markets?
Q5. Taking a suitable example explain how maximum permissible bank finance is determined under the three methods of lending.

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IGNOU MS41 MBA Assignment Question

1. Take the latest monetary policy and discuss the important highlights of this policy.
2. You are required to prepare a Cash Budget for the months of May, June and July 2021on the basis of the information given below :

(a) Income and Expenditure Forecasts

Months Credit Sales Credit Purchases Wages Manu-facturing Expenses Office Expenses Selling


March 60,000 36,000 9,000 4,000 2,000 4,000
April 62,000 38,000 8,000 3,000 1,500 5,000
May 65,000 33,000 10,000 4,500 2,500 4,500
June 58,000 35,000 8,500 3,500 2,000 3,500
July 56,000 39,000 9,500 4,000 1,000 4,500
August 60,000 34,000 8,000 3,000 1,500 4,500

(b) Cash balance on 1st May, 2021 is Rs 8,000.
(c) Plant costing Rs 16,000 is due for delivery in July, payable 10% on delivery and the balance after 3 months.
(d) Advance tax of Rs 8,000 each is payable in March and June.
(e) Period of credit allowed
(i) by suppliers – two months, and
(ii) to customers – one month.
(f) Lag in payment of manufacturing – ½ months.
(g) Lag in payment of office and selling expenses – one month

3. As a Finance Manager what are the sources that you would prefer to raise short term loans from the money market for meeting working capital needs of your business and why?

4. XYZ Ltd. is in the business of manufacturing water filters. The current ratio at the end of the last year was 3:1 which appeared to be comfortable. However, the cash flow position, is rather weak and the company finds it difficult to make payments to the suppliers and workers on time. The composition of working capital as per the last balance sheet is provided here:

Current Assets:
Inventories 18,00,000
Receivables 12,00,000
Cash and bank balances 1,00,000
Loans and advances 20,00,000
Current Liabilities 17,00,000
Mention specific possibilities of what might be causing cash flow difficulties in this context. Suggest any better ratios which the company might use to gauge its liquidity in future.

IGNOU Solution for December 2021MS41 Working capital management 2023