The management of PE Chemical Suppliers Limited asks you to prepare a cash budget for October...
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The management of PE Chemical Suppliers Limited asks you to prepare a cash budget for October and November 2015. The following information is available: Sales Purchases Salaries and ACTUAL ACTUAL JULY AUGUST 250 000 190 500 45 000 16 000 275 000 205 000 45 000 17 000 ACTUAL SEPTEMBER 290 000 215 000 3. Salaries and wages are paid as follows: 70% in the month it occurs 30% in the following month 45 000 18 500 BUDGET OCTOBER 310 000 240 000 wages Sundry expenses Further information: 1. 10% of sales is cash sales. Discount of 10% is allowed on cash sales. 2. Cash in respect of credit sales is collected as follows: 60%, 1 month after sale 45 000 19 700 25%, 2 months after sale 10%, 3 months after sale and 5% is uncollectible (bad debt). 6. Bank balance (overdraft) on 30 September - R59 000. BUDGET NOVEMBER 320 000 245 000 45 000 20 000 4. Sundry expenses include depreciation of R5 000 per month, and are paid in the month following the month it was incurred. 5. 75% of all purchases are on credit, the rest represent cash purchases and cash in respect of credit purchases is paid as follows: 50% in the same month of the credit purchases The other 50% is to be paid in the following month of the purchase. 7. During 2010 the directors of the company borrowed an amount of R120 000 interest free from the majority shareholder to finance the increased trading activities. The condition to this loan is that PE Chemical Suppliers Limited must repay the loan in December 2015. 8. Dividends of R12 000 will be proposed in November 2015 and will be paid to the shareholders during December 2015. 9. During September 2015, a machine with a carrying amount of R5 000 was stolen. It was insured for only R3 000, which will be paid out in October 2015. 10. The company has negotiated overdraft facilities (asked the bank to allow their bank balance to be negative) with the bank of up to R60 000 as and when necessary. REQUIRED: (a) Prepare a cash budget for the period October to November 2015. (b) Briefly explain whether the company will be able to meet its loan commitment on 1 December 2015. Advise management and make any recommendations you deem necessary. Clearly show what management should do if sufficient funds are not available to pay back the loan. The management of PE Chemical Suppliers Limited asks you to prepare a cash budget for October and November 2015. The following information is available: Sales Purchases Salaries and ACTUAL ACTUAL JULY AUGUST 250 000 190 500 45 000 16 000 275 000 205 000 45 000 17 000 ACTUAL SEPTEMBER 290 000 215 000 3. Salaries and wages are paid as follows: 70% in the month it occurs 30% in the following month 45 000 18 500 BUDGET OCTOBER 310 000 240 000 wages Sundry expenses Further information: 1. 10% of sales is cash sales. Discount of 10% is allowed on cash sales. 2. Cash in respect of credit sales is collected as follows: 60%, 1 month after sale 45 000 19 700 25%, 2 months after sale 10%, 3 months after sale and 5% is uncollectible (bad debt). 6. Bank balance (overdraft) on 30 September - R59 000. BUDGET NOVEMBER 320 000 245 000 45 000 20 000 4. Sundry expenses include depreciation of R5 000 per month, and are paid in the month following the month it was incurred. 5. 75% of all purchases are on credit, the rest represent cash purchases and cash in respect of credit purchases is paid as follows: 50% in the same month of the credit purchases The other 50% is to be paid in the following month of the purchase. 7. During 2010 the directors of the company borrowed an amount of R120 000 interest free from the majority shareholder to finance the increased trading activities. The condition to this loan is that PE Chemical Suppliers Limited must repay the loan in December 2015. 8. Dividends of R12 000 will be proposed in November 2015 and will be paid to the shareholders during December 2015. 9. During September 2015, a machine with a carrying amount of R5 000 was stolen. It was insured for only R3 000, which will be paid out in October 2015. 10. The company has negotiated overdraft facilities (asked the bank to allow their bank balance to be negative) with the bank of up to R60 000 as and when necessary. REQUIRED: (a) Prepare a cash budget for the period October to November 2015. (b) Briefly explain whether the company will be able to meet its loan commitment on 1 December 2015. Advise management and make any recommendations you deem necessary. Clearly show what management should do if sufficient funds are not available to pay back the loan.
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SOLUTION To prepare the cash budget for October and November 2015 we need to analyze the given information and calculate the cash inflows and outflows ... View the full answer
Related Book For
Management Accounting Information for Decision-Making and Strategy Execution
ISBN: 978-0137024971
6th Edition
Authors: Anthony A. Atkinson, Robert S. Kaplan, Ella Mae Matsumura, S. Mark Young
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