Student Forums CMA Part 1 Section B: Planning, Budgeting and Forecasting B.5. Annual Profit Plan and Supporting Schedules Question ID: ICMA 10.P1.077 (Topic: Budgeting Calculation Questions)

Question ID: ICMA 10.P1.077 (Topic: Budgeting Calculation Questions)

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  • #238149
    Guruprasad
    Participant

    Dear Sir

    In this question we need to find out the required short term borrowings in the end of february

    That can be calculated by expected collection +available cash – expected payment

    my question is , the amount borrowed at the end of january to maintain the minimum balance need to paid out in february or no?

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  • #238153
    Lynn Roden
    HOCK international

    Hello Guruprasad,

    The February ending cash before borrowing or repaying loans is a negative 50,000. Therefore, the amount that was borrowed at the end of January cannot be repaid during February. It remains outstanding throughout February, and at the end of February, another 60,000 is needed in order to maintain the necessary 10,000 minimum cash balance at the end of February.

    A short-term loan is usually any loan that is for less than a year. So the amount that was borrowed during January can remain outstanding through February and even beyond, if the lender’s terms for the loan permit it. In a situation like this, the company usually will have a line of credit that it can borrow against and then repay when it has the cash to do so, as long as it is repaid within the terms of the line of credit.

    In this question, the company does not have the cash to repay the January borrowings during February and in fact, needs to borrow more during February. So the company’s short-term debt outstanding increases during February.

    Lynn

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