Question: 7. Study the following information of ABC Ltd for the months of November 2019, December 2019, and January, February and March 2019. November ($) December ($) January ($) February ($) March ($) Cash sales 111 500 125 000 80 000 100 000 120 000 Credit sales 128 000 138 000 94 000 114 000 132 000 Cash purchases 45 000 42 000 88 000 110 000 42 000 Credit purchases 110 000 30 000 80 000 114 000 100 000 Number of weeks in the month 4 5 4 4 5 $ $ Rent paid per week 400 Rent received per week 100 Wages per week: Selling 6 800 Administration 1 800 Distribution 8 600 17 200 Other operating expenses per week: top-left: title and first table of monthly sales/purchases data; bottom-left: second table of weekly expenses with rent, wages, and other operating expenses.Other operating expenses per week: Selling 1 800 Administration 500 Distribution 1 600 3 900 Accounts receivable regularly settle their accounts as follows: 85% pay in the month following sale (these accounts take advantage of a 5% discount) 10% pay in the 2nd month 3% pay in the 3rd month The balance is written off as bad. October accounts were paid in full in December. Accounts payable are settled in the month following purchase. From 85% of suppliers, a discount of 5% is received. For the remaining 15%, no discount is received. Other operating expenses include an amount of P800 per month for depreciation as follows: Graph/shape hint: top-right, a rectangular table/box with rows for Selling, Administration, and Distribution showing amounts 1 800, 500, 1 600 and total 3 900; below it are bullet-point percentages for accounts receivable settlement.• 3% pay in the 3rd month • The balance is written off as bad. October accounts were paid in full in December. Accounts payable are settled in the month following purchase. From 85% of suppliers, a discount of 5% is received. For the remaining 15%, no discount is received. Other operating expenses include an amount of P800 per month for depreciation as follows: Selling $300 Administration 200 Distribution 300 800 Capital expenditure of $55,000 will be paid in February. Bank balance as at 31 December was $175,000. Prepare a cash budget for January, February and March. (25 marks)

1. **Problem Statement:** Prepare a cash budget for ABC Ltd for January, February, and March 2019 using the provided sales, purchases, expenses, and payment terms data. 2. **Key Formulas and Rules:** - Cash collections = Cash sales + Collections from credit sales based on payment schedule. - Cash payments = Cash purchases + Payments for credit purchases with discounts applied + Weekly expenses (rent, wages, other operating expenses) multiplied by weeks in month + capital expenditure. - Accounts receivable collections: - 85% pay next month with 5% discount - 10% pay in 2nd month - 3% pay in 3rd month - Balance written off as bad debts - Accounts payable payments: - 85% suppliers pay next month with 5% discount - 15% pay full amount next month - Depreciation is a non-cash expense and excluded from cash budget. 3. **Step 1: Calculate cash collections for each month:** - Cash sales are collected in the same month. - Credit sales collections follow the schedule: - For January collections: - 85% of December credit sales with 5% discount: $$0.85 \times 138000 \times 0.95 = 111,465$$ - 10% of November credit sales: $$0.10 \times 128000 = 12,800$$ - 3% of October credit sales (not given, assume 0 for this problem) - Total collections in January = Cash sales January + above credit collections = $$80000 + 111465 + 12800 = 204,265$$ - For February collections: - 85% of January credit sales with 5% discount: $$0.85 \times 94000 \times 0.95 = 75,865$$ - 10% of December credit sales: $$0.10 \times 138000 = 13,800$$ - 3% of November credit sales: $$0.03 \times 128000 = 3,840$$ - Total collections in February = Cash sales February + above credit collections = $$100000 + 75865 + 13800 + 3840 = 193,505$$ - For March collections: - 85% of February credit sales with 5% discount: $$0.85 \times 114000 \times 0.95 = 91,845$$ - 10% of January credit sales: $$0.10 \times 94000 = 9,400$$ - 3% of December credit sales: $$0.03 \times 138000 = 4,140$$ - Total collections in March = Cash sales March + above credit collections = $$120000 + 91845 + 9400 + 4140 = 225,385$$ 4. **Step 2: Calculate cash payments for each month:** - Cash purchases are paid in the same month. - Credit purchases are paid next month with discounts: - 85% suppliers get 5% discount - 15% pay full amount - Calculate payments for credit purchases: - January payments for December credit purchases: - Discounted: $$0.85 \times 30000 \times 0.95 = 24,225$$ - Full: $$0.15 \times 30000 = 4,500$$ - Total: $$24,225 + 4,500 = 28,725$$ - February payments for January credit purchases: - Discounted: $$0.85 \times 80000 \times 0.95 = 64,600$$ - Full: $$0.15 \times 80000 = 12,000$$ - Total: $$64,600 + 12,000 = 76,600$$ - March payments for February credit purchases: - Discounted: $$0.85 \times 114000 \times 0.95 = 91,845$$ - Full: $$0.15 \times 114000 = 17,100$$ - Total: $$91,845 + 17,100 = 108,945$$ - Weekly expenses per month: - Rent paid: $$400 \times \text{weeks}$$ - Wages total: $$6800 + 1800 + 8600 = 17,200$$ per week - Other operating expenses (excluding depreciation): $$1800 + 500 + 1600 = 3,900$$ per week - Calculate monthly expenses (excluding depreciation): - January (4 weeks): - Rent: $$400 \times 4 = 1,600$$ - Wages: $$17,200 \times 4 = 68,800$$ - Other expenses: $$3,900 \times 4 = 15,600$$ - Total: $$1,600 + 68,800 + 15,600 = 86,000$$ - February (4 weeks): same as January = 86,000 - March (5 weeks): - Rent: $$400 \times 5 = 2,000$$ - Wages: $$17,200 \times 5 = 86,000$$ - Other expenses: $$3,900 \times 5 = 19,500$$ - Total: $$2,000 + 86,000 + 19,500 = 107,500$$ - Capital expenditure of 55,000 paid in February. - Cash payments summary: - January: Cash purchases + credit purchases payment + expenses = $$88,000 + 28,725 + 86,000 = 202,725$$ - February: Cash purchases + credit purchases payment + expenses + capital expenditure = $$110,000 + 76,600 + 86,000 + 55,000 = 327,600$$ - March: Cash purchases + credit purchases payment + expenses = $$42,000 + 108,945 + 107,500 = 258,445$$ 5. **Step 3: Calculate opening and closing cash balances:** - Opening balance 1 January = Bank balance at 31 December = 175,000 - Closing balance = Opening balance + collections - payments - January closing balance: $$175,000 + 204,265 - 202,725 = 176,540$$ - February closing balance: $$176,540 + 193,505 - 327,600 = 42,445$$ - March closing balance: $$42,445 + 225,385 - 258,445 = 9,385$$ 6. **Final Cash Budget Table:** | Month | Opening Balance | Collections | Payments | Closing Balance | |---------|-----------------|-------------|----------|-----------------| | January | 175,000 | 204,265 | 202,725 | 176,540 | | February| 176,540 | 193,505 | 327,600 | 42,445 | | March | 42,445 | 225,385 | 258,445 | 9,385 | **Note:** Depreciation is excluded as it is a non-cash expense. This completes the cash budget preparation for January, February, and March 2019.