The company plans to purchase selling and administrative equipment totalling BDT 18600 and production equipment totalling BDT

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Question:

The company plans to purchase selling and administrative equipment totalling BDT 18600 and production equipment totalling BDT 27400. Both will be purchased at the end of the fourth quarter and will not affect depreciation expense for the coming year. All sales are on credit.

The company expects to collect 60 percent of sales in the quarter of sale, 20 percent of sales in the quarter following the sale, and 20 percent will not be collected (bad debts). Accounts receivable at the end of last year totalled BDT 181000, all of which will be collected in the first quarter of this coming year. All direct materials purchases are on credit. The company expects to pay 70 percent of purchases in the quarter of purchase and rest in the following quarter. Accounts payable at the end of last year totalled BDT 4200, all of which will be paid in the first quarter of this coming year.

The cash balance at the end of last year totaled BDT 18000. The following account balances are expected at the end of the fourth quarter:

------Property, plant, and equipment (net): BDT 316000

------Common stock: BDT 410000

Retained earnings at the end of last year totalled BDT 56400 and no cash dividends are anticipated for the budget period ending December 31, 2020. Requirements:

(a) Prepare a cash budget for “Banisco Bangladesh”.

(b) The COO (chief operating officer) of Banisco emphasised that any surplus amount of cash must be used to pay off previously borrowed money. In contrast, the CMO (chief marketing officer) argued that doing such would not fulfil our minimum cash balance target at the end of each month/quarter. Do you agree with CMO? Why or why not? What will be the optimum solution?

(c) Prepare the Assets and Liabilities sections of the budgeted balance sheet for “Banisco Bangladesh” (You don’t need to prepare the complete balance sheet, but only the Assets and Liabilities Sections).