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

A.

Debtor Collection Schedule
Particulars	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
1st Quarter	225000 (750000*0.5*0.6)
2nd Quarter	112500 (750000*0.5*0.3)	247500 (825000*0.5*0.6)
3rd Quarter		123750 (825000*0.5*0.3)	279000 (930000*0.5*0.6)
4th Quarter			139500 (930000*0.5*0.3)	294000 (980000*0.5*0.6)
Total	337500	371250	418500	294000

B.

Cash Budget
Particulars	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Opening	150000	673750	1246875	1897125
Add: Cash Receipts
Cash Sales	356250 (750000*0.5*0.95)	391875 (825000*0.5*0.95)	441750 (930000*0.5*0.95)	465500 (980000*0.5*0.95)
Debtors Collection	337500	371250	418500	294000
Investment and Interest	-	165000	-	-
Less: Cash Payments
Creditors Payment (Refer Below Working Note)	-100000	-120000	-140000	-135000
Fixed Overhead	-50000	-50000	-50000	-50000
Admin Expense	-20000	-20000	-20000	-20000
Closing Balance	673750	1246875	1897125	2451625

Creditors Payment Schedule
Particulars	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
1st Quarter	75000 (100000*0.75)
2nd Quarter	25000 (100000*0.25)	90000 (120000*0.75)
3rd Quarter		30000 (120000*0.25)	105000 (140000*0.75)
4th Quarter			35000 (140000*0.25)	135000 (180000*0.75)
Total	100000	120000	140000	135000

Please feel free to ask any query on any above points.