Question

4. YourTaxi operates an online taxi booking service. As a result of technical advances in technology, the existing servers have to be replaced. The company decided to come up with two competing projects. Project 1 is a booking service via the web while the Project 2 is a booking service via mobile. The company wanted the cash flow of both projects to be tracked separately. A different technical consultant is hired at a cost of RM 80,000 for each project at the start of the project in 2018. The details of each system are as follows: Project 2 RM Project 1 RM 800,000 50,000 600,000 40,000 305,000 Initial investment Residual value Contribution per annum Fixed maintenance costs per annum Other fixed operating costs per annum 600,000 60,000 580,000 20,000 360,000 5 years Estimated useful life 3 years The maintenance costs are payable annually in advance. All other cash flows apart from the initial investment should be assumed to occur at the end of each year. Depreciation has been calculated using the straight line method and has been included in other fixed operating costs. All excess cash will be sent to the current account of the holding company. The company will loan cash funds from their current account if there is a shortfall of cash for the year. At the end of each year, the project will have no cash balances. Required: Prepare a separate cash budget for each of the projects covering 2018 to 2023. 30 marks]

Answer 1

Cash Budget of Project 1 Particulars 2018 2019 2020 2021 2022 2023 Opening Balance Add: 0 0 Contribution 580000 580000 580000 580000 580000 580000 Loan Received 300000 Transfer from Current A/c 300000 Residual value 60000 60000 Total (A) 640000 580000 880000 580000 880000 640000 Less: Initial Investment 600000 600000 Technical Consultant Fees 80000 80000 Fixed Maintance Cost 20000 20000 20000 20000 20000 20000 Fixed Operating Cost excluding Depreciation 180000 180000 180000 180000 180000 180000 Transfer to Current A/c 380000 440000 380000 440000 Total (B) 880000 580000 640000 880000 640000 580000 Closing Balance (A-B) 0 0 0 0 0 0

Calculation of Depreciation per year = (600000 - 60000 ) / 3 Years = RM 180000

Cash Budget of Project 2 Particulars 2018 2019 2020 2021 2022 2023 Opening Balance 0 0 Add: Contribution 600000 600000 600000 600000 600000 600000 Loan Received 475000 Transfer from Current A/c Residual value Total (A) 475000 50000 600000 600000 1075000 600000 650000 1075000 Less Initial Investment 800000 800000 Technical Consultant Fees 80000 80000 Fixed Maintance Cost 40000 40000 40000 40000 40000 40000 Fixed Operating Cost excluding Depreciation Transfer to Current A/c Total (B) 155000 155000 155000 155000 155000 155000 405000 405000 405000 455000 1075000 600000 600000 600000 650000 1075000 Closing Balance (A-B) 0 0

Calculation of Depreciation per year = (800000 - 50000 ) / 5 Years = RM 150000