Question

The management accountant at Brookes Merchandising & More, Gary Jeffers, is in the process of preparing the cash budget for the business for the quarter ending December 31, 2018. Extracts from the sales and purchases budgets are as follows: Month Cash Sales Purchases 2018 Sales On On Account Account August $121,000 $480,000 $390,000 September $95,500 $600,000 $360,000 October $111,205 $720,000 $480,000 November $125,900 $650,000 $400,000 December $156,000 $800,000 $500,000 An analysis of the records shows that trade receivables (accounts receivable) are settled according to the following credit pattern, in accordance with the credit terms 5/30, n90: 60% in the month of sale 30% in the first month following the sale 10% in the second month following the sale (ii) Accounts payable are settled as follows, in accordance with the credit terms 3/30, n60: 80% in the month in which the inventory is purchased 20% in the following month (iii) During December, the management of Brookes Merchandising expects to sell an old motor vehicle that cost $550,000 at a loss of $35,000. Accumulated depreciation on this motor vehicle at that time is expected to be $315,000. The employee will be allowed to pay a deposit equal to 60% of the selling price in December and the balance settled in two equal amounts in January & February of 2019. Computer Equipment, which is estimated to cost $480,000, will be purchased in December. The manager has made arrangements with the seller to make a cash deposit of 50% of the amount upon signing of the agreement in December, with the balance to be settled in four equal monthly instalments, starting in January 2019. (iv) A long-term instrument purchased by Brookes Merchandising with a face value of $500,000 will mature on October 20, 2018. In order to meet the financial obligations of the business, management has decided to liquidate the investment upon maturity. On that date quarterly interest computed at a rate of 5% per annum is also expected to be collected.

Answer 1

sales for each Solution bad geted sed october collections collections from December, 2018 cash cash to of from (a) schedule months November December Particulars August September October 800 000 720.000 650,000 → 480,000 600000 (1) credit sales (given) cash collection from credit Sales 60 y. 304. TOY. 432000 298000 360,000 192000 390,000 295000 480,000 260,000 72000 240,000 48000 60,000 (56000 (2) cash sales 121,000 955000 125,900 ,11,205 Total (1) + (2) 968000 Not required Not Required 831,205 863,900 Solution for for purchases disbursements (6) schedue of budgeted cash the quanter to December 31, 2018 (a) (b) Quarterly (a) December November Particulars October August September 500.000 409000 390,000 360,000 480,000 credit purchases - Cash disbursement 80%. 320,000 312000 288000 78000 384000 72000 400,000 1,04,000 80,000 248,000 96000 20%. Total Not Required Not Required 45 6000 480,000 1352,000

Solution and payments for each months receipts for (1) cash Budget October Total December November 831,205 863,900 | 968,000 26, 63, 105 Porticulars I Receipts 1. Receipt from Sales [from solution ca)] 2 sale of old [working Note 1] 3. sale of Invert ments 90,000 90000 motor vehicle 500000 S00000 6875 6875 4. Quarterly Interest [working Note 2] 5. Rental Income 45,000 45,000 90000 6. Safety deposit 45,000 45ooo 33,94,980 13,52,000 - ments 240,000 Total Receipts (I) 13,38,080 | 9,53,900 | 11,03,000 ] I. Payments 1. Purchase Disburs- 456,000 | 416,000 416,000 | 480,000 1 [from solution (6) 2. Purchase of computer 240,000 3. Fixed operating Income (other than 126,000 126,000 126,000 depreciation) [worting Note 3] 4. Other operating 59,000 59,000 59,000 expenses 5. wages L salaries zu 5000 2u5,000 245,000 3,79,000 1,77,000 7,35,000 6. payment to wasters 380,000 ('s, 29000) 380,000 Total payments (I) 8, 86,000 opening Balonce cgiven) (m) - 158,000 Net cash flows 294,080 (1) - (I) +- (III) 12,26,000 2,94,080 21,980 1980 11,50,000 21980 - 25020 – 25020 32,62,000 -158000 - 25020

working notes: 1. Calculation of Sale value of old motor vehicle and cash receipt 500000 cost Accumu- aled Dep reciation (315000) Net loss 185000 (35000) Debember 601. = 90,000 sale value 150,000 - Cash Receipt - January 2011 - 39000 I February 201. = 30,000 2. Quarterly Interest Calculation 500000 x 51/2 % x 3/2 = 6875 3. calculation of fixed operating Income (excluding depreciation) Expenses per Annum Depreciation per Anrum (42000 X 12) = 2016000 (504000) 15,12,000 - 2 moothy Expenses 126000 Solution (d) Based on the budget prepared Brookes Merchandising will be meeting the requirement of minimum cash of $ 175000 only in the month of October Following are the steps that may be taken by management of the Company to improve the organisation's cash flow 1. Can negotiate with the Ore ditors to increase the credit period 2. If possible Assets can be taken on leased, instead of purchasing them or owning them. Debtors 3. Con Negotiate with to redure the credit period