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Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## MANAGEMENT OF WORKING CAPITAL
2. Payments to be made for expenses;
3. Payments that are made periodically but not every month;
3. (i) Debenture interest;
4. (ii) Income tax paid in advance;
5. (iii) Sales tax or GST etc.
4. Special payments to be made in a particular month, for example, ... | [
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Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Period\_\_\_\_\_\_\_\_\_\_\_\_\_\_
| | | Month 1 | Month 2 | Month 3 | Month 12 |
|-----------|------------------------------------------------|-----------|-----------|-----------|------------|
| Receipts: | Receipts: ... | [
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Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## ILLUSTRATION 6
PREPARE monthly cash budget for six months beginning from April 2024 on the basis of the following information:
- (i) Estimated monthly sales are as follows:
- (ii) Wages and salaries are estimated to be payable as follows:-
| | ` | | ` |
|--------... | [
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0.018473... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## MANAGEMENT OF WORKING CAPITAL
- (iii) Of the sales, 80% is on credit and 20% for cash. 75% of the credit sales are collected within one month after sale and the balance in two months after sale. There are no bad debt losses.
- (iv) Purchases amount to 80% of sales and are made on credit and paid ... | [
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Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## (Amount in ` )
| | February | March | April | May | June | July | August | September |
|-----------------------------------|------------|----------|----------|--------|--------|----------|----------|-------------|
| Total sales ... | [
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-0.... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Monthly Cash Budget for Six months, April to September, 2024
(Amount in ` )
| | April | May | June | July | August | September |
|--------------------------------------------------------------|----------|----------|-... | [
0.01734173856675625,
0.0013174290070310235,
-0.0031216349452733994,
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0.006800068076699972,
0.03109716810286045,
0.016... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## MANAGEMENT OF WORKING CAPITAL
- (a) Month-wise cash budget on receipts and payments basis; and
- (b) Statement of Sources and uses of funds for the three months period.
It is anticipated that the working capital & other account balances at 1 st January, 2024 will be as follows:
| ... | [
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0.0192148145288229,
-0.00930... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## FINANCIAL MANAGEMENT
| Trade creditors | 2,000 | 1,950 | 1,900 |
|------------------------------|---------|---------|---------|
| Other creditors | 200 | 200 | 200 |
| Dividends payable | 485 | -- | -- |
| Tax due ... | [
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0.0342395082116127,
0.02114394... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## WORKING
| | | ` in '000 | ` in '000 | ` in '000 |
|-----|----------------------------------------|-------------|-------------|-------------|
| | | Jan. | Feb. | March |
| (1) | Payments ... | [
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0.01599586196243763,
0.02062617987394333,
-0.007... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## (a) 3 months ending 31 st March, 2024
| ( ` in 000) | ( ` in 000) | ( ` in 000) | ( ` in 000) |
|----------------------------|---------------|----------------|---------------|
| | January, 2024 | February, 2024 | March, 2024 |
| Opening cash bala... | [
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0.029286550357937813,
-0.019... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## (b) Statement of Sources and uses of Funds for the three month period ending 31 st March, 2024
| | ` '000 | ` '000 |
|--------------------------|----------|----------|
| Sources: | | |
| Funds from operation: | ... | [
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... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Statement of Changes in Working Capital
| | January,24 ` ' 000 | March,24 ` ' 000 | Increase ` ' 000 | Decrease ` ' 000 |
|--------------------------|----------------------|--------------------|--------------------|--------------------|
| Current Assets |... | [
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Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## (ii) Add:
- (a) Trading profit (before tax) expected to be earned;
- (b) Depreciation and other development expenses incurred to be written off;
- (c) Sale proceeds of assets;
- (d) Proceeds of fresh issue of shares or debentures; and
- (e) Reduction in working capital that is current asset... | [
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-0.00... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## (iii) Deduct:
- (a) Dividends to be paid.
- (b) Cost of assets to be purchased.
- (c) Taxes to be paid.
- (d) Debentures or preference shares to be redeemed.
- (e) Increase in working capital that is current assets (except cash) less current liabilities. | [
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-0.... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Profit and Loss Account
| | Year 1 | Year 2 | | Year 1 | Year 2 |
|---------------------------|-------------|--------------|------------------|-------------|--------------|
| | ` | ` | ... | [
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0.04104061797261238,
0.0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## MANAGEMENT OF WORKING CAPITAL
a
a
Sales are expected to be ` 12,00,00,000 in year 3.
As a result, other expenses will increase by ` 50,00,000 besides other charges. Only raw materials are in stock. Assume sales and purchases are in cash terms and the closing stock is expected to go up by the ... | [
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Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Projected Profit and Loss Account for the year 3
| | Year 2 Actual ( ` in lakhs) | Year 3 Projected ( ` in lakhs) | | Year 2 Actual ( ` in lakhs) | Year 3 Projected ( ` in lakhs) |
|-----------------------|-------------------------------|--------------... | [
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-0.0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Cash Flow:
| | ( ` in lakhs) |
|--------------------------------------------|-----------------|
| Profit | 204 |
| Add : Depreciation | 100 |
| ... | [
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Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Working Notes:
- (i)
- Material consumed in year 2: 35% of sales.
<!-- formula-not-decoded -->
- (ii) Stores are 12% of sales, as in year 2.
- (iii) Manufacturing expenses are 16% of sales.
Note: The above also shows how a projected profit and loss account is prepared. | [
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Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 10.3 Managing Cash Collection and Disbursements
Having prepared the cash budget, the finance manager should ensure that there is not a significant deviation between projected cash flows and actual cash flows.
To achieve this cash management, efficiency will have to be brought in by proper control... | [
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Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 10.4 Accelerating Cash Collections
Different Kinds of Float with reference to Management of Cash: First, let's understand the time involved in the cash collection process. The term float is used to refer to the periods that affect cash as it moves through the different stages of the collection pr... | [
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... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## FINANCIAL MANAGEMENT
- Cheque processing float: This is the time required for the seller to sort, record and deposit the cheque after it has been received by the company.
- Banking processing float: This is the time from the deposit of the cheque to the crediting of funds in the sellers' ... | [
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Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 10.5 Controlling Payments
An effective control over payments can also cause faster turnover of cash. This is possible only by making payments on the due date, making excessive use of draft (bill of exchange) instead of cheques.
Availability of cash can be maximized by playing the float. In this... | [
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Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## ILLUSTRATION 9
Prachi Ltd is a manufacturing company producing and selling a range of cleaning products to wholesale customers. It has three suppliers and two customers. Prachi Ltd relies on its cleared funds forecast to manage its cash.
You are an accounting technician for the company and have b... | [
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Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## (1) Receipts from customers
| | Credit terms | Payment method | 9 Aug 20X2 sales | 9 Jul 20X2 sales |
|-------|------------------|------------------|--------------------|--------------------|
| W Ltd | 1 calendar month | BACS | ` 150,000 | ` 130,000 |
... | [
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Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## (2) Payments to suppliers
| Supplier name | Credit terms | Payment method | 9 Aug 20X2 purchases | 9 Jul 20X2 purchases | 9 Jun 20X2 purchases |
|-----------------|-------------------|------------------|------------------------|------------------------|------------------------|
| A ... | [
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-0.00... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## (3) Wages and salaries
| | July 20X2 | August 20X2 |
|------------------|-------------|---------------|
| Weekly wages | ` 12,000 | ` 13,000 |
| Monthly salaries | ` 56,000 | ` 59,000 |
- (a) Factory workers are paid cash wages (weekly). They will ... | [
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Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## (4) Other miscellaneous payments
- (a) Every Saturday morning, the petty cashier withdraws ` 200 from the company bank account for the petty cash. The money leaves Prachi's bank account straight away.
- (b) The room cleaner is paid ` 30 from petty cash every Monday morning.
- (c) Office st... | [
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Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## (5) Other information
The balance on Prachi's bank account will be ` 200,000 on 9 August 20X2. This represents both the book balance and the cleared funds.
PREPARE a cleared funds forecast for the period Saturday 7th August to Wednesday 13th August 20X2 inclusive using the information ... | [
0.0009818169055506587,
0.030656859278678894,
-0.013167371973395348,
-0.004368941765278578,
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0.06868051737546921,
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0.038650572299957275,
0.043980296701192856,
0.037724900990724564,
0.02391049824655056,
0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Cleared Funds Forecast
| | 9 Aug (Saturday) ` | 10 Aug (Sunday) ` | 11 Aug (Monday) ` | 12 Aug (Tuesday) ` | 13Aug (Wednesday) ` |
|-------------------------|-------------------------|---------------------|---------------------|----------------------|----------... | [
0.018424810841679573,
0.012927822768688202,
0.000021912283045821823,
0.006276852451264858,
-0.023456016555428505,
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0.04833046719431877,
0.01625937409698963,
-0.012676450423896313,
0.06776119768619537,
0.02164047211408615,
0.02410409413278103,
0.028050120919942856,
0.0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 10.6 Determining the Optimum Cash Balance
A firm should maintain optimum cash balance to cater to the day-to-day operations. It may also carry additional cash as a buffer or safety stock. The amount of cash balance will depend on the risk-return trade off. The firm sho... | [
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0.049744270741939545,
0.019348660483956337,
0.02790251187980175,
-0.03085125796496868,
0.00351... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 11. CASH MANAGEMENT MODELS
In recent years several types of mathematical models have been developed which helps to determine the optimum cash balance to be carried by a business organization.
The purpose of all these models is to ensure that cash does not remain idle un... | [
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0.017290549352765083,
0.02093568630516529,
-0.009879890829324722,
0.07444393634796143,
0.035691361874341965,
0.011296512559056282,
-0.01213483139872551,
-0.0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## FINANCIAL MANAGEMENT
The carrying costs refer to the cost of holding cash, namely, the opportunity cost or interest foregone on marketable securities. The transaction costs refer to the cost involved in getting the marketable securities converted into cash. This happens when the firm ... | [
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0.025273870676755905,
0.018897034227848053,
-0.03493891656398773,
0.0585959255695343,
0.03424718230962753,
0.02768651582300663,
0.004548136610537767,
-0.0090... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## ILLUSTRATION 10
A firm maintains a separate account for cash disbursement. Total disbursement are ` 1,05,000 per month or ` 12,60,000 per year. Administrative and transaction cost of transferring cash to disbursement account is ` 20 per transfer. Marketable securities yield is 8% per ... | [
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0.013017619960010052,
-0.004173934925347567,
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0.02084031142294407,
-0.01452474482357502,
-0.006459358148276806,
0.06769268959760666,
-0.0035508964210748672,
0.027147602289915085,
0.00016739030252210796,
0.... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## SOLUTION
<!-- formula-not-decoded -->
<!-- image -->
The limitation of the Baumol's model is that it does not allow the cash flows to fluctuate. Firms in practice do not use their cash balance uniformly nor are they able to predict daily cash inflows and outflows. The Miller-Orr (MO... | [
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0.04430786892771721,
-0.0010499237105250359,
0.0028163515962660313,
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0.014488906599581242,
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-0.006567062344402075,
0.0720633938908577,
0.04547642543911934,
0.018574343994259834,
0.03017178364098072,
-0.0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 11.2 Miller-Orr Cash Management Model (1966)
According to this model the net cash flow is completely stochastic .
When changes in cash balance occur randomly the application of control theory serves a useful purpose. The Miller-Orr model is one of such control limit models.
This model is design... | [
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0.09711570292711258,
0.019707418978214264,
0.04033517837524414,
0.03140130639076233,
-0.0334... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 12. RECENT DEVELOPMENTS IN CASH MANAGEMENT
It is important to understand the latest developments in the field of cash management, since it has a great impact on how we manage our cash. Both technological advancement and desire to reduce cost of operations has led to some ... | [
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0.07069727778434753,
0.012271902523934841,
0.029056023806333542,
0.015603356994688511,
... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 12.1 Electronic Fund Transfer
With the developments which took place in the Information technology, the present banking system is switching over to the computerisation of banks branches to offer efficient banking services and cash management services to their customers. The net... | [
0.0010374514386057854,
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0.05579909309744835,
0.009371577762067318,
0.010205470956861973,
0.0158902145922184,
-0.... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 12.2 Zero Balance Account
For efficient cash management some firms employ an extensive policy of substituting marketable securities for cash by the use of zero balance accounts. Every day the firm totals the cheques presented for payment against the account. The firm transfers the ba... | [
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0.09632889181375504,
0.031009307131171227,
0.03406982868909836,
0.012164640240371227,
-0.003641... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 12.3 Money Market Operations
One of the tasks of 'treasury function' of larger companies is the investment of surplus funds in the money market. The chief characteristic of money market banking is one of size. Banks obtain funds by competing in the money market for the deposit... | [
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0.03595178946852684,
0.037771835923194885,
0.02547471597790718,
0.006304367445409298,
-0.0192... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 12.4 Petty Cash Imprest System
For better control on cash, generally the companies use petty cash imprest system wherein the day-to-day petty expenses are estimated taking into account past experience and future needs and generally a week's requirement of cash will be kept separate for m... | [
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-0.004663373343646526,
0.06758387386798859,
0.023039165884256363,
0.016692331060767174,
-0.00273149111308157... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 12.5 Management of Temporary Cash Surplus
Temporary cash surpluses can be profitably invested in the following:
- Short-term deposits in Banks and financial institutions.
- Short-term debt market instruments.
- Or Long Term Debt Instruments with flexible maturity datesShares of Blue chip listed c... | [
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0.06912938505411148,
0.018378542736172676,
0.04377781227231026,
0.017184138298034668,
-... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 12.6 Electronic Cash Management System
Most of the cash management systems now-a-days are electronically based, since 'speed' is the essence of any cash management system. Electronically, transfer of data as well as funds play a key role in any cash management system. Various elements in the pro... | [
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0.07004786282777786,
0.0005587977939285338,
0.07611274719238281,
0.010153179988265038,
-0.0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Electronic-scientific cash management results in:
- Significant saving in time.
- Increase in interest earned & decrease in interest expense.
- Reduces paper-work & hence manpower.
- Greater accounting accuracy as it allows easy detection of book-keeping errors.
- More control over time an... | [
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0.013051550835371017,
0.026893824338912964,
-0.02... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 12.7 Virtual Banking
The practice of banking has undergone a significant change in the nineties. While banks are striving to strengthen customer base and relationship and move towards relationship banking, customers are increasingly moving away from the confines of traditional branch banking and ... | [
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0.04245355352759361,
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0.005061022471636534,
0.04338548704981804,
-0.... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Advantages of Virtual Banking
The advantages of virtual banking services are as follows:
- Lower cost of handling a transaction.
- The increased speed of response to customer requirements.
a
- The lower cost of operating branch network along with reduced staff costs leads to cost efficiency.
- ... | [
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0.008182944729924202,
0.02764359675347805,
-0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 13. MANAGEMENT OF MARKETABLE SECURITIES
Management of marketable securities is an integral part of investment of cash as this may serve both the purposes of liquidity and cash, provided choice of investment is made correctly. As the working capital needs are fluctuating, it is possib... | [
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0.009630401618778706,
-0.0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## ILLUSTRATION 11
The following information is available in respect of Sai trading company:
- (i) On an average, debtors are collected after 45 days; inventories have an average holding period of 75 days and creditor's payment period on an average is 30 days .
- (ii) The firm spends a total of ` 12... | [
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0.06899085640907288,
0.03942382335662842,
0.014744213782250881,
-0.010096649639308453,
-0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_2_Treasury.pdf | FM | Study_Material | N/A | [Concept: Theory]
## SOLUTION
- (a) Cash cycle = 45 days + 75 days -30 days = 90 days (3 months)
- Cash turnover = 12 months (360 days)/3 months (90 days) = 4.
- (b) Minimum operating cash = Total operating annual outlay/cash turnover, that is, ` 120 lakhs/4 = ` 30 lakhs.
- (c) Cash cycle = 45 days + 45 days -30 days ... | [
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0.0023303141351789236,
-0.0398... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 15. MEANING AND OBJECTIVE
Management of receivables refers to planning and controlling of 'debt' owed to the firm from customer on account of credit sales. It is also known as trade credit management.
The basic objective of management of receivables (debtors) is to optimise the return... | [
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0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 16. ASPECTS OF MANAGEMENT OF DEBTORS
There are basically three aspects of management of receivables:
1. Credit Policy: A balanced credit policy should be determined for effective management of receivables. Decision of Credit standards, Credit terms and collection efforts is included in Credit po... | [
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-0.01... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 17. FACTORS DETERMINING CREDIT POLICY
The credit policy is an important factor determining both the quantity and the quality of accounts receivables. Various factors determine the size of the investment a company makes in accounts receivables. They are, for instance:
- (... | [
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0.009241843596100807,
-0.... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 18. FACTORS UNDER THE CONTROL OF THE FINANCE MANAGER
The finance manager has operating responsibility for the management of the investment in receivables. His involvement includes:-
- (a) Supervising the administration of credit;
- (b) Contribute to top management decisions relat... | [
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0.027784742414951324,
0.0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Statement showing the Evaluation of Credit Policies (based on Total Approach)
| Particulars | Present Policy | Proposed Policy I | Proposed Policy II | Proposed Policy III |
|----------------------------------------------... | [
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0.012464466504752636,
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-0.002540342975407839,
-0.039041824638843536,
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0.05126543715596199,
0.01805420219898224,
0.04034903272986412,
0.045831844210624695,
-0.0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Here
- (i) Total Fixed Cost = [Average Cost per unit -Variable Cost per unit] × No. of units sold on credit under Present Policy
- (ii)
- Opportunity Cost = Total Cost of Credit Sales × Collection period (Days) Required Rate of Return ×
365 (or 360)
100 | [
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0.02210789918899536,
0.0282306969165802,
-0.018822... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Statement showing the Evaluation of Credit Policies (based on Incremental Approach)
| Particulars | Particulars | Present Policy days | Proposed Policy I days | Proposed Policy II days | Proposed Policy III days |
|-----... | [
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0.01629239320755005,
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0.04278910160064697,
0.019530393183231354,
0.024776965379714966,
0.03987206891179085,
-0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## MANAGEMENT OF WORKING CAPITAL
a
| (d) | Incremental Investment in Receivables | ………. | …………. | ……….. | ………. |
|----------------------------------|----------------------------------------------------|--------|---------|---------|--------|
| (e) ... | [
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0.032568033784627914,
-0.022881021723151207,
-0.0006942962645553052,
0.06823402643203735,
0.015434224158525467,
0.02031596750020981,
0.03349455073475838,
0.... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## ILLUSTRATION 12
A trader whose current sales are in the region of ` 6 lakhs per annum and an average collection period of 30 days wants to pursue a more liberal policy to improve sales. A study made by a management consultant reveals the following information:-
| Credit Policy | Increase in col... | [
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0.01361316442489624,
-0.01896335743367672,
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0.03149242326617241,
0.021878009662032127,
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0.08779597282409668,
0.029036153107881546,
0.053375791758298874,
0.021382998675107956,
0.... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## A. Statement showing the Evaluation of Debtors Policies (Total Approach)
| Particulars | Particulars | Present Policy 30 days | Proposed Policy A 40 days | Proposed Policy B 50 days | Proposed Policy C 60 days | Proposed Policy D 75 days |
|----------... | [
0.018515441566705704,
0.012066954746842384,
0.01627683825790882,
0.01136474683880806,
-0.032984212040901184,
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0.011153078638017178,
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0.05454415827989578,
0.030368082225322723,
0.03013012371957302,
0.027277417480945587,
-0.0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Working Notes:
- (i) Calculation of Fixed Cost = [Average Cost per unit -Variable Cost per unit] × No. of Units sold
= [ ` 2.25 -` 2.00] × ( ` 6,00,000/3)
= ` 0.25 × 2,00,000 = ` 50,000
a | [
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0.030119121074676514,
0.006080152466893196,
-0.02585... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## (ii) Calculation of Opportunity Cost of Average Investments
<!-- formula-not-decoded -->
<!-- formula-not-decoded -->
<!-- formula-not-decoded -->
<!-- formula-not-decoded -->
<!-- formula-not-decoded -->
<!-- formula-not-decoded -->
<!-- formula-not-decoded -->
- B. Another method of solvi... | [
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0.0039362371899187565,
0.025275589898228645,
-0.02... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## FINANCIAL MANAGEMENT
| Investments: | | | | | |
|-------------------------------------------------------|----------|----------|----------|----------|----------|
| (a) Cost of Credit Sales ... | [
0.02591288834810257,
0.024825843051075935,
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0.019964423030614853,
0.018721826374530792,
0.0098... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## ILLUSTRATION 13
XYZ Corporation is considering relaxing its present credit policy and is in the process of evaluating two proposed policies. Currently, the firm has annual credit sales of ` 50 lakhs and accounts receivable turnover ratio of 4 times a year. The current level of loss due to bad de... | [
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0.022881468757987022,
0.026013173162937164,
0.024261442944407463,
0.00... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## (Amount in ` )
| | Present Policy | Policy Option I | Policy Option II |
|------------------------------------|------------------|-------------------|--------------------|
| Annual credit sales | 50,00,000 | 60,00,000 | 67,50,0... | [
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-0.0007685931632295251,
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-0.034283652901649475,
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0.0532340407371521,
0.042908232659101486,
0.008331283926963806,
0.03276161849498749,
0.0219... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Statement showing the Evaluation of Debtors Policies
| Particulars | Present Policy | Proposed Policy I | Proposed Policy II |
|---------------------------------------|------------------|---------------------|----------------------|
| ... | [
0.012730763293802738,
0.0032096155919134617,
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0.03941996395587921,
0.03361401706933975,
0.030087167397141457,
-0.... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## FINANCIAL MANAGEMENT
| B Opportunity Cost of Investments in Receivables | 2,18,750 | 3,50,000 | 4,92,188 |
|----------------------------------------------------|----------------------------------|------------|------------|
| C Net Benefits (A - B) 11,31,250 ... | [
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0.02355538308620453,
-0.0027061733417212963,
0.039745524525642395,
0.02... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## ILLUSTRATION 14
A company is presently having credit sales of ₹ 12 lakh. The existing credit terms are 1/10, net 45 days and average collection period is 30 days. The current bad debts loss is 1.5%. In order to accelerate the collection process further as also to increase sales, the company is ... | [
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0.017034290358424187,
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0.07094580680131912,
0.035715311765670776,
0.04598615691065788,
0.0024252182338386774,
-0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Statement showing Evaluation of Credit Policies
| Particulars | Present Policy | Proposed Policy |
|-----------------------------------------------|------------------|-------------------|
| Credit Sales | 12,00,000 | 16,... | [
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0.03720709681510925,
0.04255107045173645,
-0.000111... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 20.1 Pledging and Factoring
Pledging of accounts receivables and Factoring have emerged as the important sources of financing of accounts receivables now-a-days.
- (i) Pledging: This refers to the use of a firm's receivable to secure a short term loan. After cash, a firm's receivables ... | [
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0.03850346803665161,
-0.00... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## MANAGEMENT OF WORKING CAPITAL
a
Factoring arrangement can be either on a recourse basis or on a non-recourse basis:
- -Recourse : In case factor is unable to collect the amount from receivables then, factor can turn back the same to the organization for resolution (which g... | [
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0.012551069259643555,
-... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Statement showing the Evaluation of Factoring Proposal
| Particulars | ` |
|---------------------------------... | [
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0.017909780144691467,
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0.04025636240839958,
-0.02... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## FINANCIAL MANAGEMENT
| B. | Annual Cost of Factoring to the Firm: | |
|------|-----... | [
0.0483771450817585,
0.02500217780470848,
0.001047614379785955,
-0.016135815531015396,
-0.01868770271539688,
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0.0525161512196064,
0.045505281537771225,
0.026762021705508232,
0.03784669190645218,
-0.0247... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Advise:
1. The company should avail Factoring services if rate of effective Cost of Factoring to the firm is less than the existing cost of borrowing or if availing services of factoring results in to positive Net Annual Benefits.
2. The company should not avail Factoring services if th... | [
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0.0360003337264061,
-0.0319... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## ILLUSTRATION 15
A Factoring firm has credit sales of ` 360 lakhs and its average collection period is 30 days. The financial controller estimates, bad debt losses are around 2% of credit sales. The firm spends ` 1,40,000 annually on debtor ' s administration. This cost comprises of telephonic an... | [
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0.056943707168102264,
0.011391879990696907,
0.018971212208271027,
-0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Working notes:
| Average level of receivables = ` 360 lakhs × | 360 30 = 30 lakhs | |
|------------------------------------------------|---------------------|-------------|
| Factoring Commission = 1% of ` 30,00,000 | = | ` 30,000 |
| Reserve = 10% of ` 3... | [
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0.018452148884534836,
-0.0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Evaluation of Factoring Proposal
| | Particulars | ` | ` |
|-----|-------------------------------|--------------------|------------|
| A . | Savings (Benefit) to the firm | | |
| | Cost of Credit administration | ` 1... | [
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0.03231722116470337,
-0.0298... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Meaning of Forfaiting
'Forfait' is a French term which means 'relinquish a right'. Forfaiting is an arrangement of bill discounting in which a financial institution or bank buys the trade bills (invoices) or trade receivables from exporters of goods or services, where the exporter re... | [
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-0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Functions of Forfaiting
The functionality can be understood in the following manner:
- (i) Exporter sells goods or services to an overseas buyer.
- (ii) The overseas buyers i.e. the importer on the basis trade bills and import documents draws a letter of credit (or other negotiable in... | [
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-0.0273284371942281... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## MANAGEMENT OF WORKING CAPITAL
a
- (iii) The exporter on receiving the letter of credit (or other negotiable instruments) approaches to its bank (known as exporter's bank).
- (iv) The exporter's bank buys the letter of credit (or other negotiable instruments) 'without recourse basis' and provides ... | [
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-0.0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Features of Forfaiting
The Salient features of forfaiting are:
- It motivates exporters to explore new geographies as payment is assured.
- An overseas buyer (importer) can import goods and services on deferred payment terms .
- The exporter enjoys reduced transaction costs and comp... | [
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-0.... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Example of Forfaiting:
Exim Bank of India's 'Buyer's Credit' is an example of forfaiting arrangement. Buyer's Credit programme facilitates exports for SMEs by providing credit to overseas buyer to import goods from India. It is offering financing of capital goods or services... | [
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-0.... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## FINANCIAL MANAGEMENT
exporters by converting deferred credit contract into cash contract. It extends advance payments to Indian exporters on behalf of the overseas buyer.
The following is a diagrammatic illustration of Exim's Buyer's Credit:
<!-- image -->
(Source: https://www.eximban... | [
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... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 21. INNOVATIONS IN RECEIVABLE MANAGEMENT
During the recent years, a number of tools, techniques, practices and measures have been invented to increase effectiveness in accounts receivable management.
Following are the major determinants for significant innovations in accounts receivable... | [
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... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## MANAGEMENT OF WORKING CAPITAL
a
Trade references; Bank references; Credit bureau reports; Past experience; Published financial statements; and Salesman's interview and reports.
Once the credit-worthiness of a client is ascertained, the next question is to set a limit of the credit. This cr... | [
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-0.0124... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 22. MONITORING OF RECEIVABLES
Constant monitoring of the current status of receivables is very essential for any organization to make sure that its receivables management is as effective as it should be. Various steps that constitute constant monitoring are:
- (i) Computation of aver... | [
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-0.017929207533597946,
0.02507900632917881,
0.... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## MANAGEMENT OF WORKING CAPITAL
a
- (ii) Ageing Schedule: When receivables are analysed according to their age , the process is known as preparing the ageing schedules of receivables. The computation of average age of receivables is a quick and effective method of comparing the liquidity of receiv... | [
0.0067620230838656425,
0.023470260202884674,
0.015859616920351982,
0.00038259304710663855,
-0.006177982315421104,
-0.022775255143642426,
0.017306895926594734,
-0.023242924362421036,
-0.01096282433718443,
0.0842280238866806,
0.01224692165851593,
-0.005666092038154602,
0.03820718452334404,
0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## Ageing Schedule
| Age Classes (Days) | As on 30 th June, 2022 | As on 30 th June, 2022 | As on 30 th June, 2022 | As on 30 th September, 2022 | As on 30 th September, 2022 | As on 30 th September, 2022 |
|----------------------|--------------------------|--------------------------|--... | [
0.040196940302848816,
0.026398835703730583,
-0.024445855990052223,
0.026909133419394493,
-0.03363680839538574,
-0.02645115926861763,
0.050954483449459076,
0.015465482138097286,
-0.00999012216925621,
0.06924320757389069,
0.005073935259133577,
0.012949536554515362,
0.04547268897294998,
0.012... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## (iii) Debt Collection Programme:
- (a) Monitoring the state of receivables.
- (b) Intimation to customers when due date approaches.
- (c) E-mail and telephonic advice to customers on the due date.
- (d) Reminding the legal recourse on overdue A/cs and follow escalation matrix if available.... | [
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0.010878338478505611,
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0.008569606579840183,
-0.021455958485603333,
-0.03320733830332756,
0.0011120439739897847,
-0.01163721363991499,
0.021254120394587517,
0.06446865946054459,
0.02286403626203537,
0.02428710088133812,
0.02661975659430027,
0.0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## ILLUSTRATION 16
Mosaic Limited has current sales of ` 15 lakhs per year. Cost of sales is 75 per cent of sales and bad debts are one per cent of sales. Cost of sales comprises 80 per cent variable costs and 20 per cent fixed costs, while the company's required rate of return is 12 per cent. M... | [
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-0.0032657079864293337,
-0.022658469155430794,
0.010867513716220856,
-0.008744006976485252,
-0.007174388971179724,
-0.0026841654907912016,
-0.0187118798494339,
0.01566370390355587,
0.0366496704518795,
0.013808228075504303,
0.023584255948662758,
0.012269359081983566,
-0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## MANAGEMENT OF WORKING CAPITAL
a
It has been estimated that this change in policy will increase sales by 15 per cent, while bad debts will increase from one per cent to four per cent. It is not expected that the policy change will result in an increase in fixed costs and creditors and stock will ... | [
0.009516113437712193,
0.01412790734320879,
-0.004506695084273815,
0.027689184993505478,
-0.004327845759689808,
-0.023472990840673447,
-0.00022979160712566227,
-0.017396070063114166,
0.0060562863945961,
0.049216046929359436,
0.016116993501782417,
0.011241760104894638,
0.009948622435331345,
... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_4_Management_of_Receivables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## SOLUTION
New level of sales will be 15,00,000 1.15 = ` 17,25,000
Variable costs are 80% 75% = 60% of sales
Contribution from sales is therefore 40% of sales
Fixed Cost are 20% × 75% = 15% of sales
| Particulars ... | [
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0.02389419637620449,
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0.00669844402000308,
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0.01927166059613228,
0.014124786481261253,
-0.014020652510225773,
0.050571173429489136,
0.017751412466168404,
0.028086230158805847,
0.03218970447778702,
-0.017... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_5_Management_of_Payables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 23. INTRODUCTION
There is an old age saying in business that if you can buy well then you can sell well. Management of your creditors and suppliers is just as important as the management of your debtors.
Trade creditor is a spontaneous / short term source of finance in the sense that... | [
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0.030537234619259834,
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0.03772244229912758,
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0.001640772563405335,
0.06618334352970123,
0.02505030669271946,
-0.0027293269522488117,
0.0077745867893099785,
-0.... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_5_Management_of_Payables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## (a) Cost of Availing Trade Credit
Normally it is considered that the trade credit does not carry any cost. However, it carries the following costs:
- (i) Price: There is often a discount on the price that the firm undergoes when it uses trade credit, since it can take advantage... | [
0.005404144991189241,
0.03317268565297127,
0.018220888450741768,
0.015182288363575935,
0.0017891601892188191,
-0.022324493154883385,
0.02837841771543026,
-0.016945265233516693,
-0.02305823378264904,
0.08617871254682541,
0.02752184495329857,
0.017049474641680717,
0.01278457511216402,
-0.024... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_5_Management_of_Payables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## (b) Cost of Not Taking Trade Credit
On the other hand, the costs of not availing credit facilities are as under:
- (i) Impact of Inflation: If inflation persists then the borrowers are favored over the lenders as they were better off to pay the fixed outstanding amount later than sooner. Also, th... | [
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0.027225404977798462,
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0.02462458610534668,
0.00555285532027483,
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0.012944159097969532,
0.011224172078073025,
-0.010980787687003613,
0.061750780791044235,
0.0416494719684124,
0.008073682896792889,
0.03504199534654617,
-0.048... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_5_Management_of_Payables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## 25. COMPUTATION OF COST OF PAYABLES
By using the trade credit judiciously, a firm can reduce the effect of growth or burden on investments in Working Capital.
Now question arises how to calculate the cost of not taking the discount.
The following equation can be used to calculate ... | [
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0.029815688729286194,
-0.009174534119665623,
0.01760282553732395,
-0.010739216580986977,
-0.04902805760502815,
0.027746545150876045,
-0.017895404249429703,
-0.010180125944316387,
0.06348772346973419,
0.0499684177339077,
0.01657930761575699,
0.019545122981071472,
-0.0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_5_Management_of_Payables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## ILLUSTRATION 17
Suppose ABC Ltd. has been offered credit terms from its major supplier of 2/10, net 45. Hence the company has the choice of paying ` 10 per ` 100 or to invest ` 98 for an additional 35 days and eventually pay the supplier ` 100 per ` 100. The decision as to whether the discount sho... | [
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0.02058148756623268,
-0.01601302996277809,
-0.004641881212592125,
-0.022117212414741516,
-0.027490239590406418,
0.027378195896744728,
-0.0077672190964221954,
-0.005483794026076794,
0.07668067514896393,
0.04483380913734436,
0.012628394179046154,
0.023471416905522346,
-0.... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_5_Management_of_Payables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## SOLUTION
If the company does not avail the cash discount and pays the amount after 45 days, the implied cost of interest per annum would be approximately:
<!-- formula-not-decoded -->
Now let us assume that ABC Ltd. can invest the additional cash and can obtain an annual return of 25% and if the... | [
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0.022879695519804955,
-0.0209458377212286,
-0.023198949173092842,
-0.012556667439639568,
-0.0047430056147277355,
0.02987425960600376,
0.004499992821365595,
-0.0034791871439665556,
0.0772268995642662,
0.05523769557476044,
0.017758475616574287,
0.010753166861832142,
-0.... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_5_Management_of_Payables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## ILLUSTRATION 18
The Dolce Company purchases raw materials on terms of 2/10, net 30. A review of the company's records by the owner, Mr. Gautam, revealed that payments are usually made 15 days after purchases are made. When asked why the firm did not take advantage of its discounts, the accountan... | [
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0.031203392893075943,
0.004877411760389805,
-0.019943123683333397,
-0.04100294038653374,
-0.011017197743058205,
0.022878019139170647,
0.0010710892966017127,
0.009524262510240078,
0.05569245666265488,
0.03789344057440758,
0.021145643666386604,
0.03918905928730965,
-0... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_5_Management_of_Payables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## MANAGEMENT OF WORKING CAPITAL
- (a) ANALYSE what mistake is Rohit making?
- (b) If the firm could not borrow from the bank and was forced to resort to the use of trade credit funds, what suggestion might be made to Rohit that would reduce the annual interest cost? IDENTIFY. | [
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0.006708263419568539,
-0.027865763753652573,
-0.015166962519288063,
0.004435745999217033,
-0.06762851029634476,
0.03181825205683708,
-0.024371549487113953,
0.008787545375525951,
0.05507006496191025,
0.049131982028484344,
0.03242216259241104,
0.029169190675020218,
-0.03... |
Inter_P6A_FM_Mod2_Chapter_9_Unit_5_Management_of_Payables.pdf | FM | Study_Material | N/A | [Concept: Theory]
## SOLUTION
- (a) Rohit's argument of comparing 2% discount with 12% bank loan rate is not rational as 2% discount can be earned by making payment 5 days in advance i.e. within 10 days rather 15 days as payments are made presently. Whereas 12% bank loan rate is for a year.
Assume that the purchas... | [
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0.02404925785958767,
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0.04289044439792633,
0.0179841797798872,
-0.01574057899415493,
0.0858355462551117,
0.04242042452096939,
0.011669415049254894,
0.04278868809342384,
-0.034382879... |
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