Question

Limpah Kurnia Sdn Bhd (LKSB) is an engineering company that started a new business with an opening cash balance of RM85,000. This new business will focus on sales component parts to all potential customers located in Sungkai, Perak. The following are the budgeted data of LKSB for the year 2020.

1.   In January 2020, to start a business the company has rented a double storey building for its operation at RM5,000 per month with RM20,000 rental deposit. Rental deposit is paid in January and monthly rental will be paid in the month it is incurred.

2.   In February, the company is planning to purchase a machine at a cost of RM55,000 which has an estimated useful life of 10 years. Depreciation charge per annum will be RM5,500. Only half of the machine cost will be paid in the month of purchase, while the balance will be paid equally over the next two months.

3.   Four (4) administration staff will be employed and each staff will be paid RM1,200 per month. Payment will be in the month in which they are incurred.

4.   Purchases of materials will be made on credit. 50% of the credit purchases will be paid in the month of purchase and another 50% one month after the purchases. Estimated purchases are as follows.
           January   RM23,000
           February   RM28,000
           March       RM25,000
           April       RM22,000

5.   A motor van costing RM49,800 will be purchased in January. Payment of the motor van will be in six equal payments starting February 2020.

6.   Estimated sales for component parts in units are:
           January    5,000
February    4,500
March        5,300
April       4,800
  
7.   The selling price for the component parts is RM20. 60% of the sales are expected to be in cash whilst the other 40% is on credit. The credit sales will be collected one (1) month after sales.
8.   Allowance for manager is RM1,000 per month and paid in the month incurred.
9.   Monthly utilities RM850 is to be paid one month in arrears.
10.   The company received 5% dividend from unit trust investment of RM500,000 in February.

Required:
a)   Prepare schedule of collection and payments for the month of January, February and March 2020.

b)   Prepare a cash budget for the month of January, February and March 2020.

(Total: 25 Marks)

Answer 1

a)		Schedule of collection:
						January	February	March
	Sales in units				a	5000	4500	5300
	Selling price				b	20	20	20
	Sales revenue				c=a*b	100000	90000	106000
	Cash sales				d=c*60%	60000	54000	63600
	Credit sales				e=c*40%	40000	36000	42400
	Credit sales collected 1 month after sale				f	0	40000	36000
	Dividend from unit trust		(500000*5%)		g	0	25000	0
	Total collection				d+f+g	60000	119000	99600
		Schedule of payments:
						January	February	March
	Credit purchases				a	23000	28000	25000
	50% paid in the month of purchase				b=a*50%	11500	14000	12500
	50% paid in 1 month after purchase				c	0	11500	14000
							(23000*50%)	(28000*50%)
	Rental deposit				d	20000	0	0
	Rent expense				e	5000	5000	5000
	Purchase of machine				f	0	27500	13750
							(55000/2)	(27500/2)
	Salary of administration staff			(4*1200)	g	4800	4800	4800
	Purchase of motor van			(49800/6)	h	0	8300	8300
	Allowance for manager				i	1000	1000	1000
	Monthly utilities				j	0	850	850
	Total payments				b+c+d+e+f+g+h+i+j	42300	72950	60200
2			Cash budget
			January	February	March
	Opening cash balance		85000	102700	148750
	Add:Total collection		60000	119000	99600
	Total cash available		145000	221700	248350
	Less:Total payments		42300	72950	60200
	Closing cash balance		102700	148750	188150