Question

ABC Ltd., has been facing cash shortage problem for many years. You have just joined the company and made the proposal to prepare cash budget for controlling of cash shortage problem. Management has given you the green signal to prepare the cash budget and made the projection for requirement of cash through commercial bank channel in the coming period. The following information were gathered for preparing the cash budget.

1. Sales budgets

November, 2019…………………………. Rs.200,000

December, 2019……………………………    300,000

January, 2020……………………………..     400,000

            February, 2020……………………………     500,000

            March, 2020………………………………..    600,000

All sales are made on credit basis and customers follow the following patter to pay;

1. 40 % pay in the month of sales.
2. 50 % in the following month of sales.
3. 10 % pay in the second month of sales.

1. Purchase budgets

1. Purchases are made equal to 60 % of the respective month sales at beginning of the month. 50% of purchase amount is paid in the month of purchases and 50% in the following month of purchases
2. Cash operating expenses per month is estimated Rs.80,000.
3. Dividend is expected to be paid Rs.100,000 in the month of January, 2020.
4. Tax is to be paid Rs.50,000 in the month of march, 2020.
5. A new plant costing Rs. 250,000 to be purchased in the month of Feb.,2020.
6. Cash on hand on 1^st January, 2020 is Rs.100,000.
7. A minimum cash balance of Rs.150,000 to be maintained from 31^st January,2020 on ward, company has made arrangement with the local bank a line of credit to meet its cash requirement and if excess cash available it would be paid to bank to pay the loan.

Required: Prepare a cash budget for the month of January, February, March, 2020.

Answer 1

Cash Budget
	January	February	March	Quarter
Beginning Balance	100,000	150,000	150,000	100,000
Cash Collections	330,000	430,000	530,000	1,290,000
Total Cash Available	430,000	580,000	680,000	1,390,000
Cash Disbursements
Merchandise Purchases	210,000	270,000	330,000	810,000
Cash Operating Expenses	80,000	80,000	80,000	240,000
Dividend paid	100,000			100,000
Tax Paid			50,000	50,000
New Plant Purchase		250,000		250,000
Total Cash Disbursements	390,000	600,000	460,000	1,450,000
Preliminary Ending Balance	40,000	(20,000)	220,000	(60,000)
Financing
Borrowings	110,000	170,000		280,000
Repayment			(70,000)	(70,000)
Interest				-
Total Financing	110,000	170,000	(70,000)	210,000
Ending Balance	150,000	150,000	150,000	150,000

Supporting Schedules

Cash collections schedule
	January	February	March	Quarter
Credit Sales Collection
Nov Sales	20,000			20,000
Dec Sales	150,000	30,000		180,000
Jan Sales	160,000	200,000	40,000	400,000
Feb Sales		200,000	250,000	450,000
Mar Sales			240,000	240,000
Total Cash Collections	330,000	430,000	530,000	1,290,000
Schedule of Expected Cash Disbursements for Merchandise Purchases
	January	February	March	Quarter
Dec Purchase	90,000			90,000
Jan Purchase	120,000	120,000		240,000
Feb purchases		150,000	150,000	300,000
Mar purchases			180,000	180,000
Total cash disbursements for purchases	210,000	270,000	330,000	810,000