QUESTION $2$

$(16$ marks, $32$ minutes$)$

On $1$ April $2013,$ Jon Doe, the owner of Cycle World, has just approached the company's bank with a request for a R$30000,90-$day loan. The purpose of the loan is to assist the company in acquiring inventories in support of peak April sales. Since the company had some difficulties in paying off its loans in the past, the loan officer had asked for a cash budget to help determine whether the loan should be made. The following information is available for the months April$-$ June, during which the loan will be used.

On April $1,$ the start of the loan period, the cash balance will be R$26000.$ Accounts Receivable on April $1$ is expected to total R$151500,$ of which R$141000$ will be collected during April and R$7200$ will be collected during May. The remainder will be uncollectible.

All sales are on credit. Past experience shows that $20\%$ of a month's sale is collected in the month of the sale, $75\%$ in the month after the sale, and $4\%$ in the month after that. The other $1\%$ percent represents bad debts that are never collected.

Budgeted sales and expenses for the period are as follows:

$\backslash$table$[[,$April,May,June$],[$Sales$,200000,300000,250000],[$Merchandise purchases,$120000,180000,150000],[$Salaries$,9000,9000,8000],[$Lease payments,$15000,15000,15000],[$Advertising$,70000,80000,60000],[$Equipment purchases,$8000,$NIL,NIL$],[$Depreciation$,10000,10000,10000]]$

Merchandise purchases are all on credit and paid in full during the month after the purchase. The balance on the accounts payable account at

$31$ March $2013$ for merchandise purchased on $31$ March $2013$ was R$108000.$

In preparing the cash budget, assume that the R$30000$ loan will be received in April and repaid with interest in June. Interest on the loan will total R$1200.$

You are required to:

a$)$ Prepare a schedule of expected cash collections from debtors for the three month period.

$(4$ marks$)$

b$)$ Prepare a cash budget for the three$-$month period.

$(12$ marks$)$