Question

 

The following information relates to Tea Limited, a company that will commence business on 1 January 2021. The company is preparing its budget for 2021 and will detail the projected activities for each quarter of the year.

Information:

1. Cash at bank on 1 January 2021 amounted to R150 000.

2. Projected sales per quarter for 2021:

First quarter R750 000

Second quarter R825 000

Third quarter R930 000

Fourth quarter R980 000

Fifty percent (50%) of the sales are for cash and fifty percent (50%) are on credit. Cash customers are entitled to a 5% cash discount.

3. Collection of credit sales:

 60% of the credit sales are collected in the quarter of the sale.

 30% is collected in the following quarter and the balance is written off as a bad debt.

4. Purchases for each quarter are expected to be as follows:

First quarter R100 000

Second quarter R120 000

Third quarter R140 000

Fourth quarter R180 000

All purchases are on credit. 75% of the purchases will be paid for in the quarter of purchase and the remaining 25% in the following quarter.

5. Fixed overheads total R200 000 per year and are paid for equally each quarter.

6. Administrative expenses are paid for in the quarter in which they are incurred and are estimated at a total of R20 000 per quarter.

7. An investment of R150 000 matures on 30 June 2021, and interest of R15 000 will also be received on this date.

Required:

2.1 Prepare the Debtors Collection Schedule for the four quarters of 2021.

2.2 Prepare the Cash Budget for the four quarters of 2021.

Answer 1

2.1 Debtors Collection Schedule for the four quarters of 2021:

Particulars	First Quarter	Second Quarter	Third Quarter	Fourth Quarter
Projected Sales	R750 000	R825 000	R930 000	R980 000
Cash Sales (50% of Projected Sales)	R375 000	R412 500	R465 000	R490 000
Cash Receipts from Cash Sales (95% of Cash Sales)	R356 250	R391 875	R441 750	R465 500
Credit Sales (50% of Projected Sales)	R375 000	R412 500	R465 000	R490 000
Collection of credit sales:
Collected in the quarter of sale (60%)	R225 000	R247 500	R279 000	R294 000
Collected in the next quarter (30%)	0	R112 500	R123 750	R139 500
Cash Receipts from Credit Sales	R225 000	R360 000	R402 750	R433 500

2.2 Cash Budget for the four quarters of 2021:

Particulars	First Quarter	Second Quarter	Third Quarter	Fourth Quarter
Beginning Cash Balance	R150 000	R586 250	R1 318 125	R1 957 625
Cash Receipts from Cash Sales	R356 250	R391 875	R441 750	R465 500
Cash Receipts from Credit Sales	R225 000	R360 000	R402 750	R433 500
Investment Proceeds	0	R150 000	0	0
Interest Income	0	R15 000	0	0
Total Cash Available	R731 250	R1 503 125	R2 162 625	R2856 625
Less: Cash Expenses
Paid for in the quarter of purchase (75% of Purchase)	R75 000	R90 000	R105 000	R135 000
Paid for in the following quarter of purchase (25% of Purchase)	0	R25 000	R30 000	R35 000
Fixed Overheads	R50 000	R50 000	R50 000	R50 000
Administrative Expenses	R20 000	R20 000	R20 000	R20 000
Total Cash Expenses	R145 000	R185 000	R205 000	R240 000
Ending Cash Balance	R586 250	R1 318 125	R1 957 625	R2 616 625