Question

Nielser Plc has engaged a consultant following the approval by
the Board of Directors. The Consultants prepared the following
information for the projected year for 2020.
Nielser Plc, which manufactures Spectacles, will have an expected
unit sales increased by 5% in quarter 1, 10% in Quarter 2, 7% in
Quarter 3 and 4% in Quarter 4.

i. It is expected that due to fluctuating demand during the year
the Price/ Unit will be at K2,500 per Unit in the 1st and 2nd
Quarters, while the price will be expected to increase to K4,500
per Unit in the 3rd and 4th Quarters.
ii. At the beginning of the year for 2020 (Jan.) It is expected that
the unit sales will be 2,500 units.
iii. Assume that Nielser Plc that sells its Spectacles to selected
retailers and that out of each quarter’s sales, 70% is collected
in the 1st Quarter of the sale; 28% is collected in the following
quarter; and 2% is bad debt.
iv. Assume accounts receivable at the beginning of the year stood
at K2,500 (all the funds to be received in the first quarter).

Required:
a). Calculate Nielser Plc sales budget for one year on quarterly
basis. 15 Marks
b). What will be the amount of debtors at the end of Dec., 2020
whose amount will be received in the 1st quarter of 2021?
5 Marks
c). What will be expected amount of bad debts (total) at the end
of 2020) (Dec.? 4 Marks
d). How will Nielser Plc Accountant treat the Bad debts figure
when preparing the cashflow statement in 2021? and explain why
it will be treated in this manner

Answer 1

a	Sales budget for one year on quarterly basis
		Amount
	Quarter 1	2625	2500+(2500*5%)
	Quarter 2	2888	2625+(2625*10%)
	Quarter 3	3090	2887.5+(2887.5*7%)
	Quarter 4	3213	3089.625+(3089.625*4%)
	Total	11815
b	Amount of debtors at the end of Dec, 2020
		Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
	Unit sales	2,625	2,888	3,090	3,213	11,815
	Price per unit	2,500	2,500	4,500	4,500
	Sales revenue	6,562,500	7,218,750	13,903,313	14,459,445	42,144,008
	70% collected in the quarter of sales	4,593,750	5,053,125	9,732,319	10,121,612	29,500,805
	28% collected in the next quarter	2,500	1,837,500	2,021,250	3,892,928	7,754,178
	Total collection	4,596,250	6,890,625	11,753,569	14,014,539	37,254,983
	Amount of debtors at the end of Dec, 2020
	Quarter 4 sales revenue	14,459,445
	28% to be received in the 1st quarter of 2021	4,048,645
c	Expected amount of bad debts
		Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
	Unit sales	2,625	2,888	3,090	3,213	11,815
	Price per unit	2,500	2,500	4,500	4,500
	Sales revenue	6,562,500	7,218,750	13,903,313	14,459,445	42,144,008
	2% bad debts	131,250	144,375	278,066	289,189	842,880
d	Bad debt amount in the income statement is subtracted to get net income.
	While preparing cashflow statement (indirect method) bad debt expenses are added back to the net income as it is a non-cash
	item. Whereas increase or decrease in accounts receivable (debtors) are adjusted (added/deducted) to the net income to get
	cash from operating activities.