Which two of the following actions are appropriate if a short-term cash

surplus is identified in the cash budget?

a.Buy back the company's shares
b. Delay payments to suppliers
c. Offer longer credit periods to customers in order to boost sales
d. Increase inventories to improve customer service
e. Replace or update non-current assets
A company sells inventory for cash to a customer, at a selling price which
is below the cost of the inventory items. Assume the company has a
positive cash balance.
How will this transaction affect the current ratio and the quick (liquidity)
ratio immediately after the transaction?
Current ratio Quick (liquidity) ratio
a. Increase Increase
b. Increase Decrease
c. Decrease Increase
d. Decrease Stay the same
Mentron plc is a profitable company that has the following estimated
figures for the coming year:
Sales 5,400,000
Gross margin 25%
Average payables 195,000
The company's inventory levels are budgeted to remain constant
throughout the year.
To the nearest day, the company's payables payment period is budgeted to
be:
a. 16 days
b. 13 days
c. 52 days
d. 18 days
A company is preparing its cash flow forecast for the next financial period.
Which two of the following items should be excluded from the
calculations?
 a. A bad debt written off
b.A corporation tax payment
c. The receipt of funding for the purchase of a new vehicle
d. Depreciation of a vehicle which has been operated for two years
e. A dividend receipt from a short term investment
A company is preparing its cash flow forecast for the next financial period.
Which two of the following items should be excluded from the
calculations?
a. Depreciation of a vehicle which has been operated for two years
b.A corporation tax payment
c. A bad debt written off
d. The receipt of funding for the purchase of a new vehicle
e. A dividend receipt from a short term investment
The directors of Yeovil plc are considering their management of working
capital.
Which three of the following, if successfully implemented, would have the
effect of reducing a company's cash operating cycle?
a.Agreeing reduced terms of trade with suppliers
b. Holding a seasonal sale at bargain prices
c. Bulk buying of inventory
d. Agreeing settlement discounts with customers
e. Agreeing increased terms of trade with suppliers
The HiTech Internet Co Ltd has annual sales of £2.64 million and a gross
profit margin of 10%. The company has no inventory. Due to a significant
investment in product development it is experiencing short-term cash flow
difficulties. The board of HiTech has decided to delay its payments to trade
suppliers by one month.
Calculate the amount by which the cash balance will benefit in the short
term from this change in policy, assuming sales are spread evenly over the
year.
a. £228,000
b. £220,000
c. £200,000
d.£198,000
Grenoside plc has a current ratio of 2. The directors of the company are
considering two mutually exclusive actions:
1 To reduce the company's bank overdraft from cash resources
2 To increase credit terms for customers from one month to two months
They wish to know what the effect of each action will be on the company's
cash operating cycle.
If the overdraft is reduced from cash resources the cash operating cycle
will:
a. lengthen
b. shorten
c. be unaffected
Which two of the following actions are appropriate if a short-term cash
surplus is identified in the cash budget?
a. Delay payments to suppliers
b.Buy back the company's shares
c. Replace or update non-current assets
d. Offer longer credit periods to customers in order to boost sales
e. Increase inventories to improve customer service
For a retailer let:
S = Sales
P = Purchases
O = Opening inventory
C = Closing inventory
D = Opening receivables
R = Closing receivables
Which of the following is the best expression for receivables days at the
period end?
a.(R / S) × 365
b. ([D + R] / P) × 365
c. ([D + R] / S) × 365
d. (D / S) × 365
A vehicle was purchased during 20X6 for £17,000 and has been
depreciated by £3,400 in each of 20X6 and 20X7. It is expected to be sold
during 20X8 for £8,600 and only £1,700 depreciation will be charged in
20X8.
What is the net cash flow that will appear in the cash budget for 20X8?
a. £8,600 inflow
b. £100 inflow
c. £6,900 inflow
d. £8,600 outflow
A company has annual sales of £7.2 million and its gross profit is 40% of
sales. Inventory turnover is 60 days, customers take an average of 30 days
to pay and the company pays its suppliers after 45 days.
How much working capital (defined as average inventories plus average
receivables minus average trade payables) does the company need,
assuming a 360-day year?
a. £660,000
b.£780,000
c.£1,860,000
d. £900,000
Datacom plc builds electrical appliances from bought-in components. The
production director charged with the responsibility of maintaining the
company's inventory levels in line with operating requirements
categorises all the components according to whether they are unique or
can be substituted by other components. He then stresses to his
management team that the unique items must receive the greater
inventory control effort.
In terms of inventory control systems, this is an example of:
a. a periodic review level system
b. an economic order quantity system
c.an ABC system
d. a re-order level system
The management of working capital is essentially about balancing which
of the following?
a. Solvency and profitability
b. Liquidity and solvency
c. Receivables and payables
d. Liquidity and profitability
A company's results for the latest year are as follows:
Cost of sales to sales 50%
Sales to capital employed 2.5 times
Non-current assets to capital employed 70%
Current ratio 2:1
Sales revenue £1,800,00
The closing balance of the company's current assets was:
a. £342,000
b. £432,000
c. £1,032,000
d. £1,008,000
The following data have been extracted from the 20X9 budget of
Firesidechair Ltd:
Sales £1,248,000
Gross profit on sales 23%
Increase in trade payables over the year £36,000
Increase in cost of inventory held over the year £52,800
Firesidechair's budgeted payment to trade suppliers in 20X9 is:
a. £872,160
b. £1,049,760
c. £977,760
d. £944,160
The following information relates to a business:
Debt collection period 10 wee
Raw material inventory holding period 6 week
Suppliers' credit period 8 week
Production period 1 week
Finished goods inventory holding period 6 week
What is the cash operating (working capital) cycle of the business?
a. 13 weeks
b. 15 weeks
c. 31 weeks
d. 5 weeks

a. 0.42
b. 1.6
c. 0.55
d. 1.35
Mentron plc is a profitable company that has the following estimated
figures for the coming year:
Sales 5,400,000 (80% on credit)
Average receivables 459,000
Gross margin 25%
To the nearest day, the company's receivables collection period is
budgeted to be:
a. 155 days
b. 39 days
c. 51 days
d. 41 days
Butterfly Limited has finalised its budget for 20X8 and sales are
anticipated to be £243,600 in January, £1,393,200 in February, £516,000 in
March and £769,200 in April.
Butterfly is budgeting that 50% of sales will be cash and the other 50%
will be on credit when 80% of receivables are expected to pay in the
month after sale, 15% in the second month after sale, while the remaining
5% are expected to be bad debts.
Credit customers who pay in the month of sale can claim a 5% cash
settlement discount.
What level of sales receipts should be shown in the cash budget for March
20X8?
a. £833,550
b. £1,425,432
c.£820,650
d. £1,438,332
A chemical compound, Phythian, is used in its production processes by
Bettachem plc. Phythian costs £1,120 per kg. Each year, the company uses
4,000 kg of Phythian and holding costs per kg per annum are £20. Every
time the company places an order for Phythian it incurs administrative
costs of £156.25.
Which of these figures is excluded when using the EOQ formula to
calculate the economic order quantity?
a.£1,120 per kg purchase price
b. £156.25 cost per order
c. 4,000 kg usage per annum
d. £20 per kg holding costs
A company is considering increasing the period of credit allowed to
customers from 30 days to 45 days.
Annual sales are currently £1,200,000, and annual profits are £100,000.
It is anticipated that allowing extended credit would increase sales by
15%, while net profit margins would be unchanged.
The working capital is financed using an overdraft costing 10% per annum.
Assume that there is no change in the absolute level of inventory or
accounts payable.
What is the financial effect of the proposal (assuming a 360 day year)?
 a. Reduction in profit of £10,000
b. Increase in profit of £15,000
c. Increase in profit of £10,000
d. Increase in profit of £7,750
TL is a service company that holds no inventories. Each month the
following relationships hold:
Gross profit 30% of sales
Closing trade payables 40% of cost of sales
TL has budgeted sales of £116,400 in July and £87,600 in August.
How much cash is budgeted to be paid in August to TL's suppliers?
a. £64,776
b. £61,320
c. £69,384
d. £53,256
Teball Ltd is considering selling its accounts receivable to BHCS, a firm of
debt factors. The debt factor will pay 95% of the value of invoices finally
paid with the balance kept as their service charge. Teball normally
receives 60% of the amount invoiced within 30 days with the remainder
received after 60 days subject to the information below.
A comparison of experience of bad debts between Teball and BHCS reveals
the following:
Bad debts:
Teball 10% of the 60-day balance
BHCS £5 in every £100 invoiced
If Teball sells its debts to BHCS, by how much will cash flow change for
every £100 factored?
a. £1 increase
b. £1 decrease
c. £5.75 increase
d. £5.75 decrease
Which TWO of the following might be associated with a lengthening cash
cycle?
a. Slower inventory turnover
 b. Lower investment in working capital
c. Higher net asset turnover
d. Taking longer to pay trade suppliers
e. Lower net operating cash inflow
Gia An Ltd manufactures leather bags. The Which TWO of the following
might be associated with a lengthening cash cycle? The company buys raw
materials from suppliers that allow the company 2.5 months credit. The
raw materials remain in inventory for 1 month and it takes Gia An Ltd 2
months to produce the goods, which are sold immediately production is
completed. Customers take an average 1.5 months to pay.
Gia An Ltd's cash operating cycle is
a. 1.5 months
b. 1 month
c. 2 months
d. 6 months
A manufacturing company has the following data in respect of its working
capital.
£

Inventories: raw materials 600,000

Work in progress 270,000

Finished goods 440,000

Purchases 2,500,000

Cost of goods sold 3,400,000

Sales 3,900,000

Receivables 820,000

Trade payables 380,000

Its cash operating (working capital) cycle is:

a. 177 days
b. 193 days
c. 185 days
d. 201 days
The following data have been extracted from the 20X9 budget of
Firesidechair Ltd:
Sales £1,248,000
Gross profit on sales 23%
Increase in trade payables over the year £36,000
Increase in cost of inventory held over the year £52,800
Firesidechair's budgeted payment to trade suppliers in 20X9 is:
a. £1,049,760
b. £944,160
c. £872,160
d. £977,760