Question

12B PL Ltd., wishes to arrange overdrafts facilities with its bankers during the period April to June 2018. When it will be manufacturing mostly for stock. Prepare a Cash Budget for the above period for the following data, indicating the extent of the bank facilities the company will require at the end of each month. Months Credit Sales (Rs.) Purchases (Rs.) Wages (Rs.) February 1.80,000 1.24,000 12,000 March 1,92,000 1,44,000 14.000 April 1,08,000 2,43,000 11,000 May 1.74,000 2,46,000 10,000 June 1.26,000 2,68,000 15,000 (a) (b) (c) 50 per cent of credit sales are realized in the month following the sales and the remaining 50 per cent in the second month following: Creditors are paid in the month following the month of purchases. Cash at bank on 1.4.2018 (estimated) Rs.25.000.

Answer 1

Points to be noted:

1 April May June JA Opening Cash Balance $ 25,000.00 $ 56,000.00 $ - B Cash Proceeds from sales Sale of February $ 90,000.00 Sale of March $ 96,000.00 $ 96,000.00 Sale of April 1 $ 54,000.00 $ 54,000.00 Sale of May $ 87,000.00 C Cash paid to creditors for previous month $1,44,000.00 $ 2,43,000.00 $ 2,46,000.00 D Cash paid for current month wages $ 11,000.00 $ 10,000.00 $ 15,000.00 E Net cash proceeds during the month (B-C-D $ 31,000.00 $ -1,03,000.00 $ -1,20,000.00 F Closing Cash Balance (A+E) $ 56,000.00 $ -47,000.00 $ -1,20,000.00 G Banking Facility required | $ - $ 47,000.00 $ 1,20,000.00

1. Banking facility required represents the additional cash required for the month.
2. Nothing was specified regarding payment of wages. Therefore, it is assumed that the wages are paid in the same month.
3. There is no minimum cash balance requirement in the question. Therefore, banking facility requirement is calculated as if there is no minimum cash requirement.