Mirchawala’s Hub Of Accountancy

MA2:Managing Costs and Finances:

Section E:Cash Management:
Question#1:
A company uses time series analysis and the additive model when preparing its cash budgets.
(1) The latest trend figure for sales calculated for January 20X1 was $2,135,000
(2) On average the trend is increasing by $17,000 each month.
(3) Season variations are estimated to be:
February -$162,000, March +135,000 and April +$181,000
What should the company’s budgeted sales figure be for April?
A. $2,340,000
B. $2,289,000
C. $2,367,000
D. $2,186,000
Question#2:
Which of the following are likely characteristics of the working capital cycle of a large retailing
business such as a supermarket chain?
(1) Receipts of cash are likely to precede payments
(2) Most cash income is received at the time of sales
(3) The majority of sales will be on credit
A. 1 and 2 only
B. 1 and 3 only
C. 2 only
D. 1,2 and 3
Question#3:
Cash budgets and forecasts can provide an early warning of liquidity problems by estimating which of
the following?
(1) How much cash is required
(2) The cost of borrowing any funds
(3) When cash is likely to be required
(4) How long cash is likely to be required for
A. 1,2,3 and 4
B. 1 and 2 only
C. 1,3 and 4 only
D. 3 and 4 only
Question#4:
Which of the following is MOST likely to be the cause of an increased cash surplus in a business?
A. Taking more credit from suppliers
B. Giving more credit to customers
C. Increasing inventories
D. Purchasing new non-current assets
Question#5:
Which of the following functions is LEAST likely to be carried out by the treasury department?
A. Managing exchange dealing including futures and options
B. Preparing the annual business plan
C. Negotiating funding arrangements with banks
D. Assembling financial information for management

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 Mirchawala’s Hub Of Accountancy

Question#6:
An extract from the account of Z Co is shown below:
$
Non-current assets 228,000
Inventory 11,460
Trade receivable 18,520
Bank overdraft 2,100
Trade payable 6,440
What is Z Co’s working capital ?
Question#7:
Which of the following methods of bank financing have agreed time periods?
(1) Bank overdraft
(2) Revolving credit facility
(3) Term loan
A. 2 and 3
B. 1 and 3
C. 3 only
D. 1 and 2
Question#8:
A manufacturer of beauty product has carried out a time series analysis on a sun tan lotion and has
decided to use the data below to estimate sales figures for the next five months.

Month Trend Seasonal variation

(‘000) (%)
March 3,001 85.6
April 3,159 88.2
May 3,343 94.5
June 3,751 99.8
July 4,108 105.4
Using the multiplicative model what are the estimated future sales for July(to the nearest $’000)
’000?
Question#9:
A monthly cash budget has been drawn up as follows:
March ($) April ($)
Receipts
Credit sales 20,000 22,000
Cash sales 10,000 9,000

Payments
Suppliers 13,000 8,400
Wages 4,600 4,600
Overheads 3,000 3,500
The opening cash balance for March was $1,000
What is the budgeted closing cash balance for April ?
Question#10:
Which of the following functions are carried out by a treasury department?
(1) Working capital management
(2) Business acquisitions and sales

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(3) Preparing the corporate budget

(4) Reviewing the annual financial statements
A. 1,2,3 and 4
B. 1 and 2 only
C. 2 and 3 only
D. 1 only
Question#11:
The management accountant at BCB Co wants to ensure that all money received by the company is
banked and not misappropriated.
Which of the following is an appropriate cash handling procedure in this situation?
A. A reconciliation of cash received and cash banked
B. Daily banking
C. Prompt despatch of signed cheques
D. Agreement of cash collections with till rolls
Question#12:
Speedy Co estimates that total revenue for 20X9 will be $240,000. It is forecast that 15% of revenue will
occur in month 1 and the rest will be spread over the remaining eleven months. All sales are on credit.
Customer accounts are settled 55% in the month of sale and 40% in the following month. 5% is written
off as irrecoverable debts after two months.
What are the budgeted cash collection in month 3 (to the nearest $)?
Question#13:
The sales figure which Fizz Co uses as the basis for its budgets and forecasts are calculated as three-
month moving averages.
Fizz CO’S actual monthly sales figures in 20X1 were:
Month Sales ($)
August 2,100
September 2,040
October 1,920
November 1,860
December 2,460
What is the moving average which will be shown against October in the budget $ ?
Question#14:
Which of the following is/are relevant to cash accounting?
1) Payments to suppliers
2) Cost of finished goods sold
3) Payment for a non-current asset
4) Profit on sale of a non-current asset
A. 2 and 4
B. 1 and 3
C. 2 and 3
D. 1 only
Question#15:
Two companies have realized they need to obtain additional financing from a bank.
Company A only needs to borrow on a short-term basis while company B needs to borrow for a longer
term in order to fund the purchase of some new capital equipment (non-current assets).

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Which type of bank borrowing would be most appropriate for each company?
Overdraft Term loan
Company B
Company A
Question#16:
Recent revenues for Chipper CO are as follows:
Year Revenue
($)
20X1 42,800
20X2 44,650
20X3 49,700
20X4 52,500
20X5 55,100
Using 20X1 as the base year what is the revenue index for 20X4 (to the nearest whole
number)?
Question#17:
Which of the following are reasons for preparing a cash budget?
1. To highlight possible shortages of cash so that necessary steps can be taken to address the shortage
2. To highlight the possible surplus cash which management could invest in interest-bearing assets
3. To highlight any expected reductions in profit so that management can take action to restore profits
A. 1,2 and 3
B. 1 and 2 only
C. 1 and 3 only
D. 2 and 3 only
Question#18:
Which of the following are objectives of cash and cheque handling procedures?
1. All monies received are recorded and banked within seven days
2. Payments are properly authorised
3. Cash forecasts are reconciled
4. The duties of receiving and banking are segregated
A. 2 and 3
B. 2 and 4
C. 1,3 and 4
D. 1 and 2
Question#19:
Are each of the following statements relating to types of cash transaction true or false?
True False
Exceptional items are unusual, for example the cost of closing down part of a business
Revenue items generally relate to the long-term functioning such as raising money from shareholders,
or acquiring non-current assets
Question#20:
There are seven key criteria which guide a bank’s decision about whether or not to lend money to a
customer. These are called the cannons of lending.
Which of the following are included in the cannons of lending?
1. Establishing the margin of profit
2. An assessment of the borrows ability to repay a loan
3. Establishing the purpose of borrowing
A. 1,2 and 3

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B. 2 and 3 only
C. 1 and 3 only
D. 1 and 2 only
Question#21:
A shop has budgeted to make the following purchases from its suppliers:
Month $
January 90,000
February 82,000
March 96,000
April 88,000
The shop budgets to pay for 75% of purchases in the month of purchase, 20% in the month after
purchase and 5% in the second month after purchase.
What is the shops budgeted payments figure for march $ ?
Question#22:
Assuming that the investment is not held until maturity, and there is no inflation, which of the
following have a risk of fluctuation in the capital value?
1) Certificate of deposit
2) Government stock
3) Bank deposit
A. 1 and 2
B. 1 and 3
C. 2 and 3
D. 1 only
Question#23:
Which of the following statements about the investment of surplus funds are correct?
(i) The higher the risk of an investment, the higher the return required by the investor.
(ii) Government securities are the less riskier than stock market investment
A. (i) and (ii)
B. (i) only
C. (ii) only
D. None of the above
Question#24:
What are UK government bonds also known as?
A. Certificates of deposit
B. Bills
C. Gilts
D. Securities
Question#25:
A bank’s decision on whether to lend is based on seven factors. There is a handy mnemonic for these.
Select the correct answer from the choices given.
A. CARPARK
B. CAMPARI
C. CLAMPED
D. CALZONE

26. Cash transactions can be capital or revenue, regular or irregular, exceptional or unexceptional.
Which of the following describes exceptional items?
A. Relates to the long-term functioning of the business
B. Unusual costs such as closure of the part of the business
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 Mirchawala’s Hub Of Accountancy
C. Does not occur at regular intervals
D. Capitalized in the accounts
27. Which TWO of the following are important procedures to follow when handling cash receipts?
A. Ensuring prompt banking of cash
B. Ensuring restriction of access to cash and cheques
C. Ensuring proper procedures are in place for authorization
D. Ensuring cash received and banked is reconciled
28. What are the government bounds otherwise known as?
A. Certificates of deposit
B. Bills
C. Gilts
D. Commercial paper
29. Loans may be repaid in three ways. One of these is amortizing over the term of loan. What are the
other two ways. Select the correct TWO from the choices given.
A. Bullet
B. Dart
C. Balloon
D. Termination
30. Complete the sentence with the correct type of covenant.______________ covenant require a
borrower to do something for instance provide management accounts. Select your answer form the
choices given below.
A. Positive
B. Negative
C. Restrictive
D. Quantitative
31. The following extracts are from Sarah Co’s financial statements.
$
Non-current assets 250,000
Inventory 56,000
Recievables 12,000
Overdraft 2,000
Payables 15,000
Accruals 1,500
What is Sarah Co’s working capital?
A. $49,500
B. $51,000
C. $53,500
D. $299,500
32. Which of the following are objectives of cash budgeting?
i. To anticipate cash shortages and surpluses
ii. To enable necessary funds to be made available
iii. To monitor trade receivables
A. 1 and 2 only
B. 1 and 3 only

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 Mirchawala’s Hub Of Accountancy
C. 2 and 3 only
D. 1,2 and 3
33. All sales of company are on credit. Budgets for a period include:
Sales $724,000
Opening trade receivables $206,900
Closing trade receivables $241,600
$4,360 of the opening trade receivables are budgeted to be written off as bad debts during the period.
What are the budgeted cash receipts from sales in the period?
A. $684,940
B. $689,300
C. $754,340
D. $758,700
34. Which of the following is NOT a feature of certificates of deposit?
A. Fixed term
B. Issued by a bank
C. Non-negotiable
D. Specified interest rate
35. Which of the following sentences is/are INCORECT?
1. Capital receipts and capital payments take place in the normal course of business.
2. Revenue receipts and payments take place when a business sell its non-current assets or settles
its non-current liabilities
3. Exceptional receipts and payments occur at the end of every six months
A. None of the above
B. 1 only
C. 2 and 3 only
D. All of the above

From The Desk Of Sir Ahmed Shafi