KSLU Solved Question Papers
Cost and Management Accounting
Previous Year Question Paper with Solution
B.B.A. LL.B. (Five Years) · Sem 3
2012 Dec Examination
munotes.in
Mumbai
B.B.A. LL.B. (Five Years) Sem 3 Cost and Management Accounting 2012 Dec Question Paper with Solutions
First published on munotes.in on 1 November 2026.
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The question paper reproduced here is the paper as set by Karnataka State Law University at the 2012 Dec examination.
Contents
The questions below are the paper as Karnataka State Law University set it at the 2012 Dec examination, in the order it was set.
MarksPage
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2012 Dec examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.
Duration 3 hours · Total marks 100 · 20 questions answered
How to use this volume
Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
Q1
Unit I
(a)What is cash budget ? What are its advantages ?[15]
Answer
For full marks, cover: what a cash budget is and where it sits among the functional budgets; the three methods of preparing it (receipts and payments, adjusted profit and loss, balance sheet); the steps and the usual layout; a worked three-month cash budget; its advantages, explained; its limitations in brief; and a conclusion.
Meaning
A cash budget estimates the cash receipts and cash payments of a business for a future period, month by month or week by week. It shows the cash balance expected at the end of each sub-period. It also shows when cash will be short and when there will be a surplus. Finance can then be arranged, or surplus funds invested, in time.
It is a functional budget of the finance department, but it draws on almost every other budget. Sales and the credit terms give collections. Purchases, wages and overheads, with their payment terms, give payments. The capital expenditure budget gives outlays on assets. It is therefore usually prepared last, just before the master budget.
Only cash items enter it. Depreciation, provisions and other book entries are left out, because no cash moves. Receipts and payments are placed in the month in which cash actually moves, not the month in which the sale or expense is recorded.
Methods of preparation
- Receipts and payments method. The opening balance is taken, every expected receipt is added and every expected payment deducted, month by month. This is the method used for short-term budgets and in examination problems.
- Adjusted profit and loss method. The budgeted profit is adjusted for non-cash items and for changes in debtors, creditors, stocks and fixed assets to arrive at the cash position. It suits longer periods.
- Balance sheet method. A budgeted balance sheet is prepared for the end of the period with all items except cash. The balancing figure is the expected cash balance. It too suits longer periods.
A figure for the adjusted profit and loss method. A firm expects a profit of Rs 50,000 for the year after charging depreciation of Rs 10,000. It expects debtors to rise by Rs 15,000 and creditors by Rs 8,000, and it will buy an asset for Rs 30,000. The expected change in cash is 50,000 + 10,000 - 15,000 + 8,000 - 30,000 = 23,000. Depreciation is added back because it reduces profit without using cash. A rise in debtors is deducted because sales not yet collected bring no cash. A rise in creditors is added because purchases not yet paid for keep cash in hand. With an opening balance of Rs 12,000, the closing balance would be 12,000 + 23,000 = 35,000.
Steps and layout (receipts and payments method)
- Fix the period and its divisions (for example, three months).
- Schedule receipts: cash sales, collections from debtors by their credit terms, and other income such as interest, dividends received or the sale of assets.
- Schedule payments: creditors by their credit terms, wages and overheads with their lags, taxes, dividends and capital expenditure.
- Start from the opening balance, add receipts, deduct payments and carry each month's closing balance forward.
- Compare each closing balance with the minimum balance the firm wishes to hold, and plan borrowing or investment.
A worked three-month cash budget
A firm starts April with Rs 25,000. Collections are Rs 60,000, Rs 70,000 and Rs 75,000 in April, May and June. Payments to suppliers, wages and overheads are Rs 55,000, Rs 68,000 and Rs 62,000, and a machine costing Rs 40,000 is paid for in May. The firm wants to keep at least Rs 20,000 in hand.
| Particulars | April (Rs) | May (Rs) | June (Rs) |
|---|---|---|---|
| Opening balance | 25,000 | 30,000 | (8,000) |
| Add: Receipts | 60,000 | 70,000 | 75,000 |
| Cash available | 85,000 | 1,00,000 | 67,000 |
| Less: Payments | (55,000) | (1,08,000) | (62,000) |
| Total, closing balance | 30,000 | (8,000) | 5,000 |
May's payments are 68,000 + 40,000 = 1,08,000. The balances are 25,000 + 60,000 - 55,000 = 30,000 in April, 30,000 + 70,000 - 1,08,000 = -8,000 in May and -8,000 + 75,000 - 62,000 = 5,000 in June.
To keep Rs 20,000 in hand, the firm needs finance of 20,000 + 8,000 = 28,000 rupees in May. It still needs 20,000 - 5,000 = 15,000 rupees at the end of June. Knowing this in March, it can arrange an overdraft, spread the machine payment, or ask customers to pay sooner. Without the budget it would discover the shortage only in May. By then the machine supplier would be asking to be paid and the bank balance could not meet the cheque.
Advantages of a cash budget
- It shows shortages in advance. The firm knows weeks or months ahead when cash will run short. It can then arrange an overdraft or a loan at reasonable cost instead of borrowing in a hurry.
- It shows surpluses in advance. Idle cash can be invested for a short period, or used to repay loans and save interest.
- It keeps the business solvent. Wages, suppliers and taxes can be paid on time, which protects the firm's credit standing.
- It co-ordinates the other budgets. A sales plan that cannot be financed, or a purchase plan that would empty the bank account, is detected and revised.
- It guides credit policy. The effect of longer credit to customers, or shorter credit from suppliers, on cash can be seen before the decision is taken.
- It supports capital expenditure planning. Large payments for assets are timed for months when cash allows, or financed in advance.
- It helps in taking cash discounts, because the firm knows when it can pay early.
- It strengthens relations with lenders. A bank is more willing to lend to a firm that can show when and how it will repay.
- It controls cash. Actual receipts and payments are compared with the budget each month, and differences are investigated.
- It guides dividend policy, since dividends must be paid in cash and not merely from profit.
The cash budget and the other budgets
The cash budget is where all the other budgets meet in money. If the sales budget is raised, collections rise, but so do purchases and wages, and their payments usually come first. A growing business can therefore run short of cash even while it is profitable. Only the cash budget shows this. Management can then decide whether to slow growth, raise capital or change credit terms. That is why, for a firm short of funds, the cash budget matters more than any other functional budget. A firm can survive a year of low profit, but not a month in which it cannot pay its workers and suppliers.
Limitations in brief
- It is only as good as the forecasts of sales and of the timing of collections, which may prove wrong.
- Delays by customers or sudden expenses can upset it, so it must be revised regularly.
- It shows the cash position but not profitability; a firm with ample cash may still be making losses.
- Preparing it in detail for many months ahead takes time. Firms therefore often prepare it monthly for the coming quarter and in outline for the rest of the year.
Conclusion. A cash budget estimates cash receipts and payments period by period and shows the cash balance expected at the end of each. It is prepared mainly by the receipts and payments method from the other functional budgets, including only cash items in the month the cash moves. Its advantages are early warning of shortages and surpluses, solvency, co-ordination of plans and guidance for credit, investment and dividend policy. It also gives control over cash and the confidence of lenders.
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