Question

ABC limited is engaged in the business of export of Canvas goods and bags. In the past the

performance of the company had been up to the expectations. In line with the latest demand in

the market the company decided to venture into leather goods for which it required specialised

machinery. For this the finance manager Prabhu Dayal prepared a financial blueprint of

organisations future operations to estimate the amount of funds required and the timing with

the objective to ensure that enough funds are available at time. He also collected the relevant

data about the prophets teammates in the coming year. By doing this he wanted to be sure

about the availability of funds from the internal sources of the business. For remaining funds he

is trying to find out alternative sources from outside.

A) Identify the financial concept discussed in the above paragraph. Also state the

objectives to be achieved by the use of financial concept so identified.(3marks)

B) There is no restrictions on payment of dividend by a company. Comment.(3 marks)​

Answer 1

Answer:

The paragraph has discussed the concept of financial planning. Financial planning entails identifying the sources of funds and ensuring that the funds are available to the firm as and when they are needed or required.

The following are the two primary goals of financial planning:

i)Timely availability of funds: financial planning assists in estimating the amount of funds that will be required for various business operations and activities at the right or correct time.

ii) Proper utilisation: Ensuring that funds are properly utilised in the sense that there is neither surplus nor insufficient funds in a firm. Appropriate use of funds.In other words, it ensures that situations of both excess or shortage of funds are avoided. This is because while inadequate funds obstruct operations of the firm, excess funding leads to wasteful expenditure by the firm. Thus, proper financial planning ensures optimal and proper utilisation of funds.

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