Question

You have just graduated from The a College and is making a budget presentation to a group of students. In your presentation you are required to prepare the cash budget for Neann Ltd for the first quarter of 2011.
The following information is to be used in the preparation of the budget.
a) The directors have agreed at a special meeting to inject additional capital into the business of $60million dollars in February 2011.
b) The business expects to receive interest income of $40million in March 2011.
c) Twenty percent (20%) of the company’s sales represents cash sales and the remainder is received 3 months later. The following sales are expected:

                       $million
October 2010    80
November 2010 40
December 2010 50
January 2011     30
February 2011    45
March 2011         50

d) Neann is expected to receive dividend of $6million at the end of January 2011
e) The following overheads are to be incurred on a monthly basis
                                $million
Factory Insurance           5
Factory Depreciation    1.5
Indirect wages               2
Indirect Materials          0.5

f) Neann plans to purchase equipment costing $12million in January 2011.
g) The directors of Neann are expected to declare a dividend of $18million in March 2011
h) At the December 2010 board meeting the directors plan to sign off on the renovation of the executive suite, the directo’rs dining room and the board room. The contract is expected to cost $200million. The work is schedule to start in May 2011 but the first payment of $110million is to be made in February 2011.
i) Three of the directors are to purchase 5 series BMW from Stewarts Motors costing $17million each. The payment is to be made in March 2011.
j) It is expected that the sale of two trucks owned by Neann will be finalized in February 2011. The sale proceeds of $10 million is to be received in March 2011.
k) The Company must maintain a minimum cash balance of $10 million
l) All borrowing occurs at the end of a month and all repayments occur at the end of the month following the loan taken.
m) Interest is paid only at the time of repayment of principal. The interest rate is 10% per year.
n)    The cash balance at the end of December 2010 was $10million    

Required:
a) Prepare a debtors collection schedule for the quarter
b) Prepare a cash budget for the quarter with a total columns ending March 31,2011     

Answer 1