Worked Solution
✓ VerifiedNote: The case scenario provided contains Additional Information points (vi) through (ix) only. Points (i) through (v) — which would normally contain monthly sales/collection data, purchase/payment schedules, operating expense details, and other cash inflow/outflow figures — are missing from the question as stated. Without those, a fully numerical Cash Budget cannot be computed. The answer below presents the correct structure, methodology, and all workable entries using available data.
Cash Budget of EXIM Ltd. (July 2024 to September 2024)
A Cash Budget is a statement estimating cash receipts and cash payments over a future period, helping management plan short-term financing and investment decisions.
Format and Framework:
| Particulars | July 2024 (₹) | August 2024 (₹) | September 2024 (₹) |
|---|---|---|---|
| Opening Cash Balance | 1,50,000 | ? | ? |
| Add: Cash Receipts (from pts i–v) | — | — | — |
| Total Cash Available (A) | — | — | — |
| Less: Cash Payments | |||
| — Operating payments (from pts i–v) | — | — | — |
| — Dividend paid | Nil | 3,00,000 | Nil |
| Total Cash Payments (B) | — | — | — |
| Net Cash Balance (A – B) | — | — | — |
| Add: Short-term loan (if deficit < ₹1L) | — | — | — |
| Less: Short-term investment (if surplus > ₹2L) | — | — | — |
| Closing Cash Balance | ≥ ₹1,00,000 | ≥ ₹1,00,000 | ≥ ₹1,00,000 |
Key Rules Applied (from given information):
- Opening balance on 01/07/2024 = ₹1,50,000 (given in point viii).
- Dividend of ₹3,00,000 is a cash outflow in August 2024 only (point vi).
- Minimum cash balance policy: If closing balance falls below ₹1,00,000, the shortfall is covered by a temporary short-term loan. If closing balance exceeds ₹2,00,000, the excess is deployed as a short-term investment (point viii).
- Interest on both short-term loans and investments is ignored (point ix).
- The ₹1,00,000 minimum balance is maintained at the end of each month.
Conclusion: Once points (i) to (v) — containing monthly receipts from debtors, payments to creditors, expenses, capital expenditure, etc. — are incorporated, the above framework will yield the complete Cash Budget. The dividend outflow in August 2024 of ₹3,00,000 is the only confirmed cash payment available and must be reflected in August's payments column. The opening July balance of ₹1,50,000 will carry forward month to month as per the net cash position after applying the borrowing/investment policy.
Write it like this
1The skeleton
- Draw the table first with all three month columns — examiners scan for the horizontal format instantly; a narrative answer loses presentation marks before they even read a number.
- Label your Opening Balance row explicitly and plug in ₹1,50,000 for July — this shows you've read the data point; carry forward each month's closing as the next month's opening to demonstrate the chain.
- Show the Dividend of ₹3,00,000 only in August's payments column — isolating it proves you can map cash flows to the correct period, which is the core skill being tested here.
- Add a dedicated row for Short-term Loan / Short-term Investment BELOW net cash — this is the policy adjustment row; without it you're not answering point (viii) at all and that's easy marks left on the table.
- State the minimum balance rule in one line below your table — something like 'Minimum cash balance of ₹1,00,000 to be maintained; deficit funded by short-term loan, surplus above ₹2,00,000 invested short-term' — examiners reward explicit policy acknowledgment.
2Examiner-rewarded phrases
3Common trap
Most students forget to add a separate adjustment row for short-term borrowing/investment and instead just write the net balance — that misses the whole treasury management angle of the question and drops you 1–2 marks straight away even if your arithmetic is clean.