Management of Cash and Marketable Securities – Financial Management MCQ

Management of Cash and Marketable Securities – CS Executive Financial and Strategic Management MCQ Questions with Answers you can quickly revise the concepts.

Management of Cash and Marketable Securities – Financial Management MCQ

Question 1.
Which of the following will NOT appear in a Cash Budget?
(A) Machinery bought on hire purchase
(B) Depreciation of machinery
(C) Sales revenue
(D) Wages
Answer:
(B) Depreciation of machinery

Question 2.
Which of the following is not true about a cash budget?
(A) A cash budget sets out all cash receipts and payments that a business expects to make over a period of time.
(B) Cash budgets are usually prepared on a month-to month basis.
(C) Cash budgets show the expected bank balance at the end of the month.
(D) Cash budgets include personal cash receipts and expenses.
Answer:
(D) Cash budgets include personal cash receipts and expenses.

Question 3.
Of the four costs shown below, which would not be included in the cash budget of an insurance firm?
(A) Depreciation of fixed asset
(B) Commission paid to agents
(C) Office salaries
(D) Capital cost of a new computer
Answer:
(A) Depreciation of fixed asset

Question 4.
A cash budget for the six months ended 30th September 2020 shows an anticipated overdraft of approximately ₹ 9,05,500. Which of the following would reduce the expected overdraft?
(A) Allowing customers two months credit, instead of one month credit, in which to pay.
(B) Suppliers’ purchases being made for cash, instead of one month’s credit.
(C) Assets being leased, rather than purchased for cash, in 2020.
(D) Charging depreciation on fixed assets at 25% on the straight-line basis, rather than 20%.
Answer:
(C) Assets being leased, rather than purchased for cash, in 2020.

Question 5.
NSZ Ltd. cash budget forewarns of a short term surplus. Which of the following would be appropriate action to be taken in such a situation?
(A) Increase debtors and stock to boost sales
(B) Purchase new fixed assets
(C) Repay long term loans
(D) All of the above
Answer:
(A) Increase debtors and stock to boost sales

Question 6.
Which of the following is least likely to be considered a short-term marketable security?
(A) An original issue 30 years corporate bond with 1 year remaining until final maturity.
(B) An original issue 30 years government bond with 1 year remaining until final maturity.
(C) 90 days Treasury bill.
(D) Short-term corporate debt instruments with 9 months original maturity.
Answer:
(A) An original issue 30 years corporate bond with 1 year remaining until final maturity.

Question 7.
Which of the following would NOT lead to an increase in net cash flow?
(A) Larger sales volume
(B) Reduced materials costs
(C) Lower depreciation charge
(D) Higher selling price
Answer:
(C) Lower depreciation charge

Question 8.
The optimal balance of marketable securities held to take care of probable deficiencies in the firm’s cash account is referred to as the ……. segment in the firm’s portfolio of short-term marketable securities.
(A) Ready cash
(B) Controllable cash
(C) Free cash
(D) Cash and cash equivalent
Answer:
(A) Ready cash

Question 9.
Advantages of maintaining cash budgets would not include one of the following:
(A) Surplus cash can be put to more profitable uses if expected to occur
(B) Debtors can be paid more quickly
(C) Time is available to investigate the possible future sources of finance
(D) Overdrafts can be negotiated in advance of when they are needed
Answer:
(B) Debtors can be paid more quickly

Question 10.
Which of the following statements most accurately describes the modern approach to cash management?
(A) Cash management involves the efficient disbursement of cash.
(B) Cash management involves the efficient collection and disbursement of cash.
(C) Cash management involves the efficient processing, collection, and depositing of cash.
(D) None of the above
Answer:
(C) Cash management involves the efficient processing, collection, and depositing of cash.

Question 11.
Which of the following would be found in a cash budget?
(A) Capital expenditure
(B) Provision for doubtful debts
(C) Depreciation
(D) Accrued expenditure
Answer:
(C) Depreciation

Question 12.
Collection float is the
(A) Total time between the mailing of the cheque by the customer and the availability of cash to the receiving firm.
(B) Time consumed in clearing the cheque through the banking system.
(C) Time the cheque is in the mail.
(D) Time during which the cheque received by the firm remains uncollected.
Answer:
(A) Total time between the mailing of the cheque by the customer and the availability of cash to the receiving firm.

Question 13.
Which of the following will not affect preparation of cash budget?
(A) Loan taken by firm
(B) Proceeds from asset disposal
(C) Reduction in provision for doubtful debts
(D) Cash sales
Answer:
(C) Reduction in provision for doubtful debts

Question 14.
Deposit float is the
(A) Total time between the mailing of the cheque by the customer and the availability of cash to the receiving firm.
(B) Time consumed in clearing the cheque through the banking system.
(C) Time the cheque is in the mail.
(D) Time during which the check received by the firm remains uncollected.
Answer:
(D) Time during which the check received by the firm remains uncollected.

Question 15.
Which of the following items would have to be included for a company preparing a schedule of cash receipts and disbursements for the calendar year 2019?
(A) The annual depreciation for the year 2019.
(B) Purchase order issued in December 2014 for items to be delivered in February 2019.
(C) Dividends declared in November 2019, to be paid in January 2020 to shareholders of record as of December – 2019
(D) Funds borrowed from a bank on a note payable taken out in June 2018 with an agreement to pay the principal and all of the interest owed in December 2019.
Answer:
(D) Funds borrowed from a bank on a note payable taken out in June 2018 with an agreement to pay the principal and all of the interest owed in December 2019.

Question 16.
Availability float is the
(A) Total time between the mailing of the cheque by the customer and the availability of cash to the receiving firm.
(B) Time consumed in clearing the cheque through the banking system.
(C) Time the cheque is in the mail.
(D) Time during which the cheque received by the firm remains uncollected.
Answer:
(B) Time consumed in clearing the cheque through the banking system.

Question 17.
A cash budget is like an income statement.
(A) I agree
(B) I disagree
(C) I cannot say
(D) The statement is ambiguous
Answer:
(B) I disagree

Question 18.
Cash management is a broad term used for collecting and managing cash.
Speculative motive of holding cash refers to –
(A) Holding the cash to utilize it in internal projects.
(B) Holding the cash for any future loss the company is expecting.
(C) Holding the cash to avail any future investment opportunity.
(D) Holding the cash to utilize it for international project.
Answer:
(C) Holding the cash to avail any future investment opportunity.

Question 19.
Non-cash transactions
(A) Form part of cash budget
(B) Do not form part of cash budget
(C) May or may not form part of cash budget
(D) I cannot say whether they are part of cash budget
Answer:
(B) Do not form part of cash budget

Question 20.
Companies hold cash time to time. Transaction motive of holding cash means
(A) Keeping a cash reserve for purchasing goods and services to balance out the cash inflows and outflow.
(B) Keeping the cash for all the transactions made during a periodic term.
(C) Keeping the cash for transactions mandatory for day to day activities
(D) Keeping the transactions for foreign trading.
Answer:
(A) Keeping a cash reserve for purchasing goods and services to balance out the cash inflows and outflow.

Question 21.
Cash Budget statement shows the position of business as on …………. of the business period.
(A) Opening date
(B) Closing date
(C) Between opening and closing date
(D) None of the above
Answer:
(C) Between opening and closing date

Question 22.
The statement of cash flows tells us –
(A) The financial position of the business at a point in time.
(B) The forecast cash movements over a period of time.
(C) How much cash has been received and paid during an accounting period.
(D) How much profit the business has made during an accounting period.
Answer:
(C) How much cash has been received and paid during an accounting period.

Question 23.
Net profit+Non-cash expenditure=
(A) Cash profit
(B) Cash flow
(C) Out of cash
(D) Cash gross profit
Answer:
(A) Cash profit

Question 24.
Cash flow is –
(A) Linked only to the balance sheet.
(B) Linked only to the income statement.
(C) Not linked to the balance sheet or income statement.
(D) Linked to the balance sheet and income statement.
Answer:
(D) Linked to the balance sheet and income statement.

Question 25.
The term cash includes
(A) Cash and Bank Balances
(B) All the Current Assets
(C) All the Current Liabilities
(D) None of the above
Answer:
(A) Cash and Bank Balances

Question 26.
Which of the following statement is/are correct and which are incorrect?
I. Idle cash resources entail a great deal of cost in terms of interest charges and in terms of opportunities costs.
II. As per speculative motive of holding case, the efficient firms seek to deploy surplus cash in short term investments to get better returns.
III. Baumol’s model of cash management assumes that the cash is used randomly over a period of time.
Select the correct answer from the options given below:
(A) I & III
(B) I only
(C) II only
(D) III only
Answer:
(D) III only

Question 27.
“Cash budget reveals the effects of transactions involving movement of cash’’. This statement is
(A) Correct
(B) Not correct
(C) Partially correct
(D) None of the above
Answer:
(A) Correct

Question 28.
Which of the following is/are motive(s) for holding cash?
1. Transactional Motive
2. Speculative Motive
3. Derivative Motive
4. Contingency Motive
5. Promissory Motive
Select the correct answer from the options given below:
(A) 1,2,3
(B) 2,4,5
(C) 1,2,4
(D) 1,3,5
Answer:
(C) 1,2,4

Question 29.
Which one of the following events will reduce the cash balances of a business?
(A) Dividend proposed pending share-holder approval
(B) Purchase of stock on credit
(C) Creditors paid amounts owed
(D) Purchase of fixed assets on interest free credit
Answer:
(C) Creditors paid amounts owed

Question 30.
Which of the following statement is false?
(A) If the firm is engaged in cash purchase of raw material from a number of sources, its requirement of cash would be less than that a firm which buys on credit.
(B) A firm having cash purchase and cash sale would need to maintain more cash balance than a firm which buys on credit and sells on credit.
(C) Realistic cash forecasting mean that cash forecast for the entire next year should be prepared at its commencement.
(D) All of the above
Answer:
(A) If the firm is engaged in cash purchase of raw material from a number of sources, its requirement of cash would be less than that a firm which buys on credit.

Question 31.
A business may incur an operating loss in a given financial year yet has more cash in the bank at the end. A reason for this could be that:
(A) Some fixed assets were sold for cash
(B) Dividends paid were higher this year than last
(C) Payments to creditors were made more promptly
(D) Debtors were allowed a longer period of credit
Answer:
(A) Some fixed assets were sold for cash

Question 32.
The motive of holding cash for contingencies is based –
(A) On the fact the most liquid current asset has the maximum potential of value addition to a firm’s business.
(B) On size of the cash pool that depends upon the overall operations of the firm.
(C) On the need to maintain sufficient cash to act as a cushion to buffer against unexpected events.
(D) On medium through which all the transactions of the firm are carried out.
Answer:
(C) On the need to maintain sufficient cash to act as a cushion to buffer against unexpected events.

Question 33.
All of the following are true regarding the purpose of the statement of cash flows / cash budget except
(A) It is for predicting future cash flows
(B) It is for determining the company’s ability to pay dividends to share-holders and interest and principle to creditors
(C) It is for evaluating management decisions
(D) It is for reporting net income
Answer:
(D) It is for reporting net income

Question 34.
Which of the following is not method of preparation of cash budget?
(A) Receipts & Payments Method
(B) Adjusted Income Method
(C) Adjusted Balance Sheet Method
(D) Adjusted Revenue Method
Answer:
(D) Adjusted Revenue Method

Question 35.
Which of the following transactions would not create a cash flow?
(A) A company purchased some of its own shares from a shareholder.
(B) Amortization of a patent
(C) Payment of a cash dividend.
(D) Sale of equipment at book value.
Answer:
(B) Amortization of a patent

Question 36.
Which of the following is not an operating cash flow?
(A) Collection of cash from receivables
(B) Payment of income tax
(C) Payment of cash for operating expenses
(D) Purchase of equipment for cash
Answer:
(D) Purchase of equipment for cash

Question 37.
If you start with earnings before interest and taxes and then subtract a firm’s tax expense while adding back the amount of depreciation expense for the firm during the year, the resulting figure is called
(A) Free Cash Flow
(B) Operating Cash Flow
(C) Net Cash Flow
(D) Gross Cash Flow
Answer:
(B) Operating Cash Flow

Question 38.
Marketable securities are primarily
(A) Short-term debt instruments
(B) Short-term equity securities
(C) Long-term debt instruments
(D) Long-term equity securities
Answer:
(A) Short-term debt instruments

Question 39.
In cash flow method for preparing cash budget, payment of dividends and prepaid payments are –
(A) Deducted from opening balance of cash
(B) Added to opening balance of cash
(C) Not included in cash budget
(D) None of the above
Answer:
(A) Deducted from opening balance of cash

Question 40.
Concentration banking -…………..
(A) Increases idle balances.
(B) Moves excess funds from a concentration bank to regional banks.
(C) Is less important during periods of rising interest rates.
(D) Improves control over corporate cash.
Answer:
(D) Improves control over corporate cash.

Question 41.
As per Cash flow method, the amount of expected net operating cash profit during the fiscal is—
(A) Added to the opening balance of cash
(B) Deducted from the opening balance of cash
(C) Not included in cash budget
(D) None of the above
Answer:
(A) Added to the opening balance of cash

Question 42.
Which of the following marketable securities is the obligation of a commercial bank?
(A) Commercial paper
(B) Negotiable certificate of deposit
(C) Repurchase agreement
(D) T-bills
Answer:
(B) Negotiable certificate of deposit

Question 43.
Which of the following method is based on technique of cash flow statement?
(A) Cash Accounting Period
(B) Projected Balance Sheet Method
(C) Project forecast method
(D) None of the above
Answer:
(C) Project forecast method

Question 44.
The most basic requirement for a firm’s marketable securities –
(A) Safety
(B) Yield
(C) Marketability
(D) Transaction
Answer:
(A) Safety

Question 45.
Which of the following statements are not true about Projected Balance Sheet Method?
(A) It is good for long-term
(B) It is appropriate for annual cash forecast
(C) It is of extreme use for planning and control
(D) None of the above
Answer:
(C) It is of extreme use for planning and control

Question 46.
Float management is related to –
(A) Cash Management
(B) Inventory Management
(C) Receivables Management
(D) Raw Materials Management
Answer:
(A) Cash Management

Question 47.
While preparing cash budget, if there is no specific direction in respect of a particular item, it is assumed that payments or receipts will take place in –
(A) Current month
(B) Next month
(C) Month of occurrence
(D) Insufficient data to decide
Answer:
(C) Month of occurrence

Question 48.
Which of the following is not true of cash budget?
(A) Cash budget indicates timings of short-term borrowing.
(B) Cash budget is based on accrual concept.
(C) Cash budget is based on cash flow concept.
(D) Repayment of principal amount of law is shown in cash budget.
Answer:
(B) Cash budget is based on accrual concept.

Question 49.
Baumol’s Model of Cash Management attempts to:
(A) Minimise the holding cost
(B) Minimization of transaction cost
(C) Minimization of total cost
(D) Minimization of cash balance
Answer:
(C) Minimization of total cost

Question 50.
Which of the following would not lead to an increase in net cash flow?
(A) Higher selling price
(B) Reduced materials costs
(C) Lower depreciation charge
(D) Larger sales volume
Answer:
(C) Lower depreciation charge

Question 51.
Z Ltd. has an estimated cash payments of ₹ 8,00,000 for a one month period and the payments are expected to steady over the period. The fixed cost per transaction is ₹ 250 and interest rate on marketable securities is 12% p.a. Optimal cash balance = ₹ and No. of transaction = ?
(A) 20,000; 4.8
(B) 2,00,000; 48
(C) 20,00,000; 480
(D) 2,00,00,000; 4,800
Answer:
(B) 2,00,000; 48
Management of Cash and Marketable Securities – Financial Management MCQ 5
Management of Cash and Marketable Securities – Financial Management MCQ 6

Question 52.
The budgeted sales for the next four quarters are ₹ 1,92,000, ₹2,88,000, ₹2,88,000 & ₹ 3,36,000, respectively. It is estimated that sales will be paid as follows:
75% of the total will be paid in the quarter that the sales were made. Of the balance 50% will be paid in the quarter after the sale was made. The remaining 50% will be paid in the quarter after this.
The amount of cash received in quarter 3 will be
(A) ₹ 2,76,000
(B) ₹ 1,44,000
(C) ₹ 3,24,000
(D) ₹ 2,40,000
Answer:
(A) ₹ 2,76,000
Management of Cash and Marketable Securities – Financial Management MCQ 7

Question 53.
A company has made the following budget forecasts for next year:
Management of Cash and Marketable Securities – Financial Management MCQ 2
No other relevant information is available.
What is the company’s budgeted cash holding at 31 December next year?
(A) ₹ 34,000
(B) ₹ 26,000
(C) ₹ 6,000
(D) ₹ 56,000
Answer:
(D) ₹ 56,000
Management of Cash and Marketable Securities – Financial Management MCQ 8

Question 54.
BDL Ltd. is currently preparing its cash budget for the year to 31 March 2019. An extract from its sales budget for the same year shows the following sales values.
March — 60,000
April — 70,000
May — 55,000
June — 65,000
40% of its sales are expected to be for cash. Of its credit sales, 70% are expected to pay in month after sale and take 2% discount. 27% are expected to pay in the second month after the sale, and the remaining 3% are expected to be bad debts. The value of sales budget to be shown in the cash budget for May 2018 is
(A) ₹ 60,532
(B) ₹ 61,120
(C) ₹ 66,532
(D) ₹ 86,620
Answer:
(A) ₹ 60,532
Management of Cash and Marketable Securities – Financial Management MCQ 9

Question 55.
If the beginning balance of cash is ₹ 5,000 and the desired closing cash balance is ₹ 10,000, with the only other cash-related items being sales/revenue ₹ 15,00,000, direct materials purchases ₹ 10,45,000, and cost of direct labour ₹ 4,68,000, what would be the surplus or deficit of cash at the end of the period?
(A) Deficit of ₹ 8,000
(B) Surplus of ₹ 18,000
(C) Deficit of ₹ 18,000
(D) No surplus or deficit
Answer:
(C) Deficit of ₹ 18,000
5,000 + 15,00,000 (sales) – 10,45,000 (material purchase) – 4,68,000 (labour) – 10,000 (desired cash balance) = – 18,000

Question 56.
A Ltd. has observed its receivable collection pattern to be as follows: 40% in the month of the sale, 45% in the month following the sale, and 13% in the second month following the sale. Sales for the last 3 months of the year were as follows:
October ₹ 3,00,000; November, ₹ 4,50,000 and December, ₹ 6,25,000. Sales for January are budgeted to be ₹ 3,75,000.
What are the budgeted cash collections for January?
(A) ₹ 3,75,000
(B) ₹ 4,89,750
(C) ₹ 4,95,750
(D) ₹ 6,25,000
Answer:
(B) ₹ 4,89,750
Management of Cash and Marketable Securities – Financial Management MCQ 10

Question 57.
N Ltd. has a separate account for cash disbursement. An estimated cash payments of ₹ 2,62,500 for a one month period and the payments are expected to steady over the period. The fixed cost per transaction is ₹ 25 and interest rate on marketable securities yields 7.5% p.a. Optimal cash balance = ?
(A) ₹ 45,826
(B) ₹ 14,491
(C) ₹ 4,583
(D) ₹ 43,826
Answer:
(A) ₹ 45,826

Question 58.
Use the following information to calculate net cash flow:
Cash sales ₹ 1,00,000; cash from account receivable payments ₹ 2,00,000; cash dividends received ₹ 3,000; dividends paid ₹ 4,000; rent paid ₹ 5,000 and amortization expense ₹ 6,000.
(A) ₹ 2,98,000
(B) ₹ 2,94,000
(C) ₹ 3,04,000
(D) ₹ 2,90,000
Answer:
(B) ₹ 2,94,000
1,00,000 + 2,00,000 + 3,000 – 4,000 – 5,000 = 2,94,000
Management of Cash and Marketable Securities – Financial Management MCQ 24

Question 59.
If opening balance of accounts receivable is ₹ 2,68,800; closing balance is ₹ 2,97,600 and total credit sales during the year was ₹ 40,32,000. What is the cash received from debtors?
(A) ₹ 40,60,800
(B) ₹ 45,98,400
(C) ₹ 40,03,200
(D) ₹ 43,00,800
Answer:
(C) ₹ 40,03,200
2,68,800 + 40,32,000 – 2,97,600 = 40,03,200

Question 60.
Jagdish has made the following predictions for his business for the first 6 months of trading to 30th June 2019:
Sales in Jan, Feb & March = ₹ 20,000 per month
Sales in April, May & June = ₹ 35,000 per month
Sales will be on 1 month credit. Total cash received from customers during the 6 months ended 30th June 2019, will be:
(A) ₹ 1,65,000
(B) ₹ 1,45,000
(C) ₹ 1,85,000
(D) ₹ 1,30,000
Answer:
(D) ₹ 1,30,000
Management of Cash and Marketable Securities – Financial Management MCQ 11

Question 61.
Jolly has made the following predictions for his business for the first 6 months of trading to 30 June 2019:
Sales in Jan, Feb & March = ₹ 20,000 per month
Sales in April, May & June = ₹ 35,000 per month
Sales will be on 1 month credit. Purchases will be for cash.
If goods are sold at a gross profit margin of 40%, and goods are replaced as soon as they are sold, the amount payable to suppliers in March 2019, will be:
(A) ₹ 8,000
(B) ₹ 10,000
(C) ₹ 12,000
(D) ₹ 14,000
Answer:
(C) ₹ 12,000
20,000 × 60% = 12,000

Question 62.
The annual cash requirement of A Ltd. is ₹ 10,00,000. The company has marketable securities in lot size of ₹ 50,000. Cost of conversion of marketable securities per lot is ₹ 1,000. The company can earn 5% annual yield on its securities. Calculate total cost.
(A) ₹ 21,000
(B) ₹ 21,250
(C) ₹ 18,750
(D) ₹ 12,500
Answer:
(B) ₹ 21,250
Management of Cash and Marketable Securities – Financial Management MCQ 25
From the above calculation it is observed that when lot size of securities is Rs. 2,00000 the total costs are minimum at Rs. 10,000 and hence ills an economic lot size of selling securities.
Calculation of economic lot size by applying Baumol Model is as follows:
Management of Cash and Marketable Securities – Financial Management MCQ 26

Question 63.
An extract from Chandan’s Cash Budget is given below: the 3 months ended 30th June?
(A) No overdraft facility is required.
(B) An overdraft of a little over ₹ 5,000 is required.
(C) An overdraft of a little over ₹ 8,000 is required.
(D) An overdraft of a little over ₹ 20,000 is required.
Management of Cash and Marketable Securities – Financial Management MCQ 3
Answer:
(D) An overdraft of a little over ₹ 20,000 is required.

Question 64.
In a firm, the forecast of wages for month of December, January, February and March are ₹ 4,800, ₹ 6,000, ₹ 6,400 and ₹ 6,800. The time-lag in payment of wages is 1 /8 month.
Determine the amount of wages payable in each month January to March.
(A) ₹ 6,750, ₹ 6,350 and ₹ 5,850
(B) ₹ 5,850, ₹ 6,350 and ₹ 6,750
(C) ₹ 5,850, ₹ 6,750 and ₹ 6,350
(D) None of the above
Answer:
(B) ₹ 5,850, ₹ 6,350 and ₹ 6,750
Management of Cash and Marketable Securities – Financial Management MCQ 12

Question 65.
Given estimated sales in February, March, April, May & June are ₹ 90,000, ₹ 96,000, ₹ 54,000, ₹ 87,000 & ₹ 63,000. In case 50% of sales are realized in the next month and balance in the next of next month, determine cash collection from sales in April and May.
(A) ₹ 93,000 and ₹ 75,000
(B) ₹ 93,000 and ₹ 70,500
(C) ₹ 75,000 and ₹ 70,500
(D) ₹ 75,000 and ₹ 75,000
Answer:
(A) ₹ 93,000 and ₹ 75,000

Question 66.
JPL has two dates when it receives its cash inflows, ie. Feb. 15 and Aug. 15. On each of these dates, it expects to receive ₹ 15 Crores. Cash expenditure are expected to be steady throughout the subsequent 6 month period. Presently, the ROI in marketable securities is 8% p.a., and the cost of transfer from securities to cash is ₹ 125 each time a transfer occurs. What is the optimal transfer size using the EOQ Model? What is the average cash balance?
(A) ₹ 9,06,186;₹ 4,53,093
(B) ₹ 96,825; ₹ 48,413
(C) ₹ 3,06,186; ₹ 1,53,093
(D) ₹ 9,68,246;₹ 4,84,123
Answer:
(D) ₹ 9,68,246;₹ 4,84,123

Question 67.
The annual cash requirement of A Ltd. is ₹ 10,00,000. The company has marketable securities in lot size of ₹ 1,00,000. Cost of conversion of marketable securities per lot is ₹ 1,000. The company can earn 5% annual yield on its securities. Calculate total cost.
(A) ₹ 10,500
(B) ₹ 10,450
(C) ₹ 12,500
(D) ₹ 14,500
Answer:
(C) ₹ 12,500

Question 68.
Z Ltd. has a separate account for cash disbursement. An estimated cash payments of ₹ 6,56,250 for a one month period and the payments are expected to steady over the period. The fixed cost per transaction is ₹ 20 and interest rate on marketable securities yields 10% p.a.
(A) ₹ 57,283
(B) ₹ 56,125
(C) ₹ 57,125
(D) ₹ 56,283
Answer:
(B) ₹ 56,125
Management of Cash and Marketable Securities – Financial Management MCQ 13

Question 69.
The annual cash requirement of A Ltd. is ₹ 10,00,000. Cost of conversion of marketable securities per lot is ₹ 1,000. The company can earn 5% annual yield on its securities. Optimal cash balance = ? and No. of transactions = ?
(A) 1,00,000; 5
(B) 4,00,000; 10
(C) 2,00,000; 5
(D) 2,00,000; 10
Answer:
(C) 2,00,000; 5
Management of Cash and Marketable Securities – Financial Management MCQ 14
Management of Cash and Marketable Securities – Financial Management MCQ 15

Question 70.
Dec 2014: The following information is available:
Wages for January: ₹ 20,000 Wages for February: ₹ 22,000 Delay in payment of wages: 1/2 month
The amount of wages paid during the month of February is —
(A) ₹ 11,000
(B) ₹ 22,000
(C) ₹ 20,000
(D) ₹ 21,000
Answer:
(D) ₹ 21,000
Management of Cash and Marketable Securities – Financial Management MCQ 16

Question 71.
Dec 2014: In an organization, cash sales is 25% and credit sales is 75%. Sales for October, 2013 is ₹ 12,00,000, November, 2013 ₹ 14,00,000, December, 2013 ₹ 16,00,000, January, 2014 ₹ 6,00,000 and February, 2014 ₹ 8,00,000. 60% of credit sales are collected in the next month after sales, 30% in the second month and 10% in the third month. No bad debts are anticipated. The cash collected in the month of February, 2014 from debtors is —
(A) ₹ 15,00,000
(B) ₹ 9,80,000
(C) ₹7,35,000
(D) ₹ 80,000
Answer:
(C) ₹7,35,000
Management of Cash and Marketable Securities – Financial Management MCQ 17

Question 72.
June 2015: In Rise Ltd., cash sales is 25% and credit sales 75%. Sales for November, 2014 is ₹ 15,00,000, December, 2014? 14,00,000, January, 2015 ? 16,00,000, February, 2015 ₹ 10,00,000 & March, 2015 ₹ 9,00,000. 60% of the credit sales are collected in the next month after sales, 30% in the second month and 10% in the third month. No bad debts are anticipated. The cash collected in the month of March, 2015 from debtors is —
(A) ₹ 14,60,000
(B) ₹ 14,20,000
(C) ₹ 12,20,000
(D) ₹ 9,15,000
Answer:
(D) ₹ 9,15,000
Management of Cash and Marketable Securities – Financial Management MCQ 18
Management of Cash and Marketable Securities – Financial Management MCQ 19

Question 73.
June 2015: Estimated wages for January is ₹ 4,000 and for February ₹ 4,400. If the delay in payment of wages is 1/2 month, the amount of wages to be considered in cash budget for the month of February will be –
(A) ₹ 4,000
(B) ₹ 4,400
(C) ₹4,600
(D) ₹ 4,200
Answer:
(D) ₹ 4,200
Management of Cash and Marketable Securities – Financial Management MCQ 20

Question 74.
June 2016: Kriti Ltd. has provided following information for the quarter January to March:
Management of Cash and Marketable Securities – Financial Management MCQ 4
20% of the sales are on cash basis and balance on credit basis. The amount to be collected from debtors in the month of February and March will be —
(A) Zero and ₹ 8,000 respectively
(B) ₹ 8,000 & ₹ 16,000 respectively
(C) ₹ 8,000 & ₹ 24,000 respectively
(D) ₹ 16,000 & ₹ 36,000 respectively
Answer:
(C) ₹ 8,000 & ₹ 24,000 respectively
Management of Cash and Marketable Securities – Financial Management MCQ 21
Amount collected from debtors = Opening Balance + Credit Sales – Closing Balance
Feb = 16,000 + 32,000 – 40,000 = 8,000
Mar = 40,000 + 48,000 – 64,000 = 24,000

Question 75.
Dec 2016: While preparing cash budget, which of the following items would not be included —
(A) Interest paid to debenture holders
(B) Salaries and wages
(C) Bonus shares issued
(D) Income-tax paid
Answer:
(C) Bonus shares issued

Question 76.
Dec 2016: Consider the following statements:
(1) Depreciation reduces tax liability, hence it is a source of funds.
(2) Decrease in current liabilities during the year results in an increase in working capital.
(3) The term cash equivalents includes short-term marketable investments.
(4) Conversion of debentures into equity shares appears in funds flow statement.
(5) Only non-cash expenses are added to net profit to find out funds from operation.
Select the incorrect statements from the options given below —
Management of Cash and Marketable Securities – Financial Management MCQ 23
Answer:
(C)
Management of Cash and Marketable Securities – Financial Management MCQ 25
From the above calculation it is observed that when lot size of securities is Rs. 2,00000 the total costs are minimum at Rs. 10,000 and hence ills an economic lot size of selling securities.
Calculation of economic lot size by applying Baumol Model is as follows:
Management of Cash and Marketable Securities – Financial Management MCQ 26

Question 77.
Dec 2018: Which of the following involves a movement of cash?
(A) A bonus issue
(B) A right issue
(C) Depreciation of fixed assets
(D) Provision for taxes
Answer:
(B) A right issue

Question 78.
Dec 2018: Working capital will not change if there is:
(A) Increase in current assets
(B) Payment to the creditors
(C) Decrease in current liabilities
(D) Decrease in current assets
Answer:
(B) Payment to the creditors

Question 79.
Dec 2018: Which one of the following is fake?
(A) If cash outflows exceed cash inflows on an ongoing basis, the business will eventually run out of cash.
(B) Rapidly expanding companies can sometimes face a cash shortage.
(C) Cash is the lifeblood of a business and without it the business will die.
(D) A profitable company will never run out of cash.
Answer:
(D) A profitable company will never run out of cash.

Question 80.
June 2019: The following information extracted from the records of P Ltd.
Sales for October, November and December, 2018 are ₹ 90,000, ₹ 1,10,000 and ₹ 80,000respectively. 40% of its sales are expected to be for cash. Of its credit sales 70% are expected to pay in the month after sales and take 2% discount on it. Balance is expected to pay in second month after sales and 3% of it is expected to bad debts. What are the sales receipts to be shown in cash budget for the month of December?
(A) ₹ 92,990
(B) ₹ 1,23,174
(C) ₹ 95,609
(D) ₹ 1,25,793
Note: MCQ is wrongly drafted; for further clarification please see the hints.
Answer:
Management of Cash and Marketable Securities – Financial Management MCQ 22
None of the option contains figure of 91,856 and hence MCQ is wrong.

Question 81.
June 2019: The following information What will be the amount of cash from is given:
Depreciation provided dining the year: Furniture ₹ 15,000, Building ₹ 14,000. The statement of P&L for the year: Opening balance ₹ 38,500 Add Profit for the year 140,300, Less: Goodwill written off ? 15,000, Closing balance ₹ 63,800. What will be the amount of cash from is given: operations?
(A) ₹ 69,300
(B) ₹ 54,300
(C) ₹ 78,800
(D) ₹ 25,300
Answer:
(A) ₹ 69,300
63,800 + 15,000 + 15,000 + 14,000 – 38,500 = 69,300