CS Executive · Corporate Accounting and Financial Management · Working Capital Management
Kaveri Ltd takes 40 days to convert raw material to finished goods and sell them, 30 days to collect from debtors and gets 20 days credit from creditors. If its annual cash operating expenses are Rs 7,20,000 and a 360-day year is used, what is the minimum operating cash required?
The cash cycle is 40 + 30 - 20 = 50 days, giving a turnover of 7.2 times a year. Minimum operating cash is 7,20,000 divided by 7.2, which is Rs 1,00,000, not any listed figure.
- ARs 1,80,000Correct
- BRs 1,20,000
- CRs 1,60,000
- DRs 1,40,000
Explanation
Cash cycle = 40 + 30 - 20 = 50 days. Cash turnover = 360/50 = 7.2. Minimum cash = 7,20,000/7.2 = Rs 1,00,000. This does not equal any option, so the stated key is wrong.
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