The following information was extracted from ABC Ltds financial statements for the year ended 31 December 2019.
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Question:
The following information was extracted from ABC Ltd’s financial statements for the year ended 31 December 2019.
- Sales on 30 November 2019 were K100 million and K110 million on 31 December 2019. For the year 2020, sales are expected to double at a constant monthly rate.
- 80% of the sales made are on account; the remainder on cash.
- From past experience, 5% of the receivables have turned out to be irrecoverable.
- Credit customers pay as follows:
- 75% in the month following the sale;
- 15% two months after the sale month.
- Inventory levels are maintained at 20% of the following month’s sales.
- Accounts payables are at settled at 30 days after purchase.
Required:
- Prepare a collections schedule for the three-month period from January to March 2020.
- Prepare a cash forecast for the three-month period from January to March 2020.
- Assess the Operating Cycle ratios and their implication on the working capital requirements of the company for the forecast period.
Related Book For
Advanced Accounting
ISBN: 978-0077862220
12th edition
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik
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