IGNOU MS-41 - Working Capital Management

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 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.

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 2021 on the basis of the information given below: (a) Income and Expenditure Forecasts (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: 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.