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CA Intermediate · Cost and Management Accounting · Budgets and Budgetary Control

Mehta Traders has an opening cash balance of ₹40,000 on 1 March. March sales are ₹3,00,000 and February sales were ₹2,50,000; in each month 40% of sales are for cash and 60% are credit sales collected in the following month. In March it pays ₹1,60,000 for purchases, ₹50,000 for wages and ₹30,000 for expenses, and buys plant for ₹60,000 in cash. Depreciation of ₹20,000 is not included in the above payments. What is the closing cash balance at the end of March?

Closing cash is ₹10,000. Collections are ₹2,70,000 (cash sales of March plus 60% of February credit sales), and cash payments including plant are ₹3,00,000. Opening cash of ₹40,000 therefore falls to ₹10,000, and non-cash depreciation is excluded.

  1. A₹10,000Correct
  2. B-₹10,000
  3. C₹70,000
  4. D₹40,000

Explanation

Collections = 40% of 3,00,000 (1,20,000) + 60% of 2,50,000 (1,50,000) = ₹2,70,000. Payments = 1,60,000 + 50,000 + 30,000 + 60,000 = ₹3,00,000. Closing cash = 40,000 + 2,70,000 - 3,00,000 = ₹10,000. Depreciation is non-cash and is ignored; deducting it would give -₹10,000.

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