A budget with quarterly freelance receipts
Series X-A case study · set 2, case 1 of 9 · 5 questions · 1 mark each
Question 1 of 5Case practice
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The case · stays here for all 5 questions
Ishan receives a fixed salary of ₹50,000 every month. His freelance work pays ₹60,000 at the end of each quarter, four times a year. Assume those payments arrive as contracted. Each month he spends ₹45,000 on essentials, ₹10,000 on an EMI and ₹5,000 on discretionary items. He also expects an annual insurance payment of ₹48,000 in twelve months and wants to build a separate reserve through twelve equal monthly transfers. He has no other income or expenses. His adviser compares annual affordability with the cash shortages that can still occur in individual months. Ignore investment returns on the reserve.
All people, firms, prices and contract terms are fictional.
Ignore taxes and transaction costs unless the case explicitly includes them.
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The case and its answers
Every question of this case, with its answer and why each other option is wrong.
Ishan receives a fixed salary of ₹50,000 every month. His freelance work pays ₹60,000 at the end of each quarter, four times a year. Assume those payments arrive as contracted. Each month he spends ₹45,000 on essentials, ₹10,000 on an EMI and ₹5,000 on discretionary items. He also expects an annual insurance payment of ₹48,000 in twelve months and wants to build a separate reserve through twelve equal monthly transfers. He has no other income or expenses. His adviser compares annual affordability with the cash shortages that can still occur in individual months. Ignore investment returns on the reserve.
All people, firms, prices and contract terms are fictional.
Ignore taxes and transaction costs unless the case explicitly includes them.
Q1What is Ishan’s total expected annual income?
Option A. ₹8,40,000 — Correct answer
Option B. ₹6,00,000
Why it is wrong: This excludes freelance receipts.
Option C. ₹6,60,000
Why it is wrong: This counts only one freelance receipt instead of four.
Option D. ₹13,20,000
Why it is wrong: This incorrectly treats ₹60,000 freelance income as monthly.
Answer: A. 12 × ₹50,000 + 4 × ₹60,000 = ₹8,40,000. Remember: Income frequency matters when converting a budget to annual amounts.
Hint, shown before you answer in practice mode: Include twelve salary payments and four freelance payments.
XA-S2-C01-Q1easynumerical
Q2What monthly transfer builds the insurance reserve?
Option A. ₹4,000 — Correct answer
Option B. ₹12,000
Why it is wrong: This divides by four instead of twelve.
Option C. ₹48,000
Why it is wrong: This is the entire annual bill.
Option D. ₹2,000
Why it is wrong: This funds only half the bill.
Answer: A. ₹48,000 ÷ 12 = ₹4,000 per month. Remember: A sinking fund spreads a known future bill across a planning period.
Hint, shown before you answer in practice mode: Spread the known bill over twelve equal deposits.
XA-S2-C01-Q2mediumnumerical
Q3After all listed expenses and the insurance reserve, what is average monthly surplus?
Option A. −₹14,000
Why it is wrong: This is the shortfall in a month with no freelance receipt, not the average.
Option B. ₹20,000
Why it is wrong: This counts average freelance income but ignores the salary budget shortfall.
Option C. ₹10,000
Why it is wrong: This excludes the insurance reserve.
Option D. ₹6,000 — Correct answer
Answer: D. ₹70,000 − ₹45,000 − ₹10,000 − ₹5,000 − ₹4,000 = ₹6,000. Remember: Average affordability should include irregular but predictable bills.
Hint, shown before you answer in practice mode: Annual income averages ₹70,000 per month.
XA-S2-C01-Q3mediumnumerical
Q4What cash shortfall occurs in a month with no freelance payment if the reserve transfer is still made?
Option A. ₹6,000
Why it is wrong: This is the annual-average surplus, not the monthly shortage.
Option B. ₹24,000
Why it is wrong: This overstates the listed outflows.
Option C. ₹10,000
Why it is wrong: This omits the reserve transfer.
Option D. ₹14,000 — Correct answer
Answer: D. Outflows including the reserve are ₹64,000. Income is ₹50,000, so the shortfall is ₹14,000. Remember: A positive annual surplus can coexist with negative monthly cash flow.
Hint, shown before you answer in practice mode: Only the ₹50,000 salary arrives in that month.
XA-S2-C01-Q4mediumnumerical
Q5Which adjustment best addresses this timing problem without changing total annual spending?
Option A. Invest every quarterly receipt in a locked long-term product.
Why it is wrong: That removes cash needed before the next receipt.
Option B. Remove the insurance bill from the budget.
Why it is wrong: A predictable bill remains payable even if omitted from a spreadsheet.
Option C. Retain part of each quarterly receipt in liquid cash for the intervening months. — Correct answer
Option D. Treat all freelance income as available at the start of every month.
Why it is wrong: That changes the receipt dates and conceals the gap.
Answer: C. Holding enough of the quarterly receipt in an accessible buffer lets the salary shortfall and reserve transfers be funded between receipts. Remember: Cash-flow planning covers timing as well as totals.
Hint, shown before you answer in practice mode: Match the availability of money to payment dates.
XA-S2-C01-Q5mediumapplication
Beginning-of-year versus end-of-year deposits
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