CASH BUDGET

Q. 1- A firm adopts a six-monthly time span sub-divided into monthly intervals for the cash budget.(A) The following information is available in respect of its operations:

(Figure in lakhs) Months 1 2 3 4 5 6

SalesPurchasesDirect labourManuf. OverheadsAdministrative exp.Distribution exp.Raw materials (30

days credit)

40 1 613 2 214

501.50

713.50

23

15

60 2 814 2 416

60 2 814 2 416

60 2 814 2 416

40 1 613 2 215

(B) Assume the following financial flows during the period:Inflows: 1. Interest received in month 1- Rs. 1 lakh; in month 6-Rs. 1 lakh.

2. Dividend received during months 3 and 6 is Rs. 2 lakhs each;3. Sale of shares in month 6 amounts to Rs. 160 lakhs.

Outflows: 1. Interest paid during month 1 is Rs. 0.40 lakh;2. Dividends paid during months 1 and 4 is Rs. 2 lakhs each;3. Installment payment on machine in month 6 is Rs. 20 lakhs;4. Repayment of loan in month 6 is Rs. 80 lakhs;

Assume that 10% of each month’s sales are for cash; the balance 90% are on credit. The terms and credit experience of the firm are:

No cash discount;1% of credit sales is returned by the customers;1% of total accounts receivable is bad debt;50% of all accounts that are going to pay, do so within 30 days;100% of all accounts that are going to pay, do so within 60 days.

Using the above information prepare a cash budget for the six months’ horizon.

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Q.2- The following results are expected by XYZ Ltd. by quarters next year, in thousands of rupees.Quarter 1 2 3 4 Sales 7,500 10,500 18,000 10,500Cash payments: Production costs 7,000 10,000 8,000 8,500 Selling, adm. and other costs 1,000 2,000 2,900 1,600purchases or plant and other fixed assets. 100 1,000 2,100 2,100Debtors at the end of a quarter are one-third of sales for the quarter. The opening balance of debtors is Rs. 30,00,000. Cash on hand at the beginning of the year is Rs. 6,50,000 and the desired minimum balance is Rs. 5,00,000. Borrowings are made at the beginning of quarters in which the need will occur in multiples of Rs. 10,000 and are repaid at the end of quarters. Interest charges may be ignored. You are required to prepare:a cash budget by quarters for the year, andstate the amount of loan outstanding at the end of the year.

Q.3- The following data pertain to a shop. The owner has made the following sales forecasts for the first 5 months of the coming year- January : 40,000; February : 45,000; March : 55,000 April : 60,000; May : 50,000. Other data are as follows:Debtors and creditors’ balances at the beginning of the year are Rs. 30,000 and Rs.

14,000, respectively. The balances of other relevant assets and liabilities are: Rs.

Cash balance 7,500Stock 51,000Accrued sales commission 3,500

40% sales are on cash basis. Credit sales are collected in the month following sale.Cost of sales is 60% of sales.The only other variable cost is a 5% commission to sales agents. Sales commission is

paid in the month after it is earned, i.e. time-lag is one month; 80% sales are subject to the commission.

Inventory is kept equal to sales requirements for the next two months’ budgeted sales.Trade creditors are paid in the following month after purchases.Fixed costs are Rs. 5,000 per month, including Rs. 2,000 depreciation. You are required to prepare a cash budget for each of the first three months of coming year.

Q.4- You are required to prepare the cash budget for the first six months on the basis of the following information: sales on credit, variable costs and wages are budgeted as follows (the November and December figures of the previous year being the actual figures for those months):

Month Credit sales (Rs)

Variable cost (Rs) Wages (Rs)

November, 1997DecemberJanuary, 1998FebruaryMarchAprilMayJune

10,00012,00014,00013,00010,00012,00013,00016,000

7,0007,5008,0007,7007,0007,5008,8508,750

1,0001,1001,2001,0001,0001,1001,2001,300

First expenses amount to Rs. 1,500 per month, and the half year’s preference dividend of Rs. 1,400 is due on June 30th. Advance tax amounting to Rs. 8,000 is payable in January and progress payment under a building contract are due as follows: March 31st, Rs. 5,000; and May 31st, Rs. 6,000The terms on which goods are sold are net cash in the month following delivery. Variable costs are payable in the month following that in which they are incurred, and 50% are subject to 2 ½ discount, and the balance are net. It is found that 75% of debtors to whom sales are made pay with in the period of credit, and the remainder do not pay until the following month. The company pays all its accounts promptly.

Q.5- Prepare a Cash Budget of XYZ Ltd., on the basis of the following information for the six months commencing April, 98i) Cost and prices remain unchanged and firm maintains a minimum cash balance

of Rs. 40,00,000 for which bank overdraft may be availed if required.Cash sales are 25% of the total sales and balance 75% will be credit sales. 60% of

credit sales are collected in the month following the sales, balance 30% and 10% in the two following months thereafter. No bad debts are anticipated.

iii) Sales forecasts are as follows:1998 Rs. 1998 Rs.January 12,00,000 June 8,00,000February 14,00,000 July 12,00,000March 16,00,000 August 10,00,000April 6,00,000 September 8,00,000May 8,00,000 October 12,00,000

iv) Gross Profit Margin 20% Anticipated Purchases and wages for 1998 are as follows:

Purchases Wages April 6,40,000 1,20,000 May 6,40,000 1,60,000 June 9,60,000 2,00,000 July 8,00,000 2,00,000 August 6,40,000 1,60,000 September 9,60,000 1,40,000

vi) Quarterly interest payable Rs. 30,000; rent payable Rs. 8000 per month.Capital expenditure expected in September is Rs. 1,20,000.

Q. 6- From the following information prepare the cash budget of a business firm for the month April. The firm makes 20% cash sales. Credit sales are collected 40% ,30%, 25% in the month of sales, a month after and second month after sales, respectively. The remaining 5% become bad debts. The firm has a policy of buying enough goods each month to maintain its inventory at 2 ½ times the following month’s budgeted sales.

The firm is entitled to 2% discount on all of its purchases if bills are paid within 15 days and the firm avails all such discounts. Creditors are then equal to ½ of that month’s net purchases. Cost of goods sold, without considering the 2% discount, is 50% of selling prices. The firm records inventory net of discount.

Other data is as under: Sales Amount (Rs.)January (actual) 1,00,000February (actual) 1,20,000March (actual) 1,50,000April (projected) 1,70,000May (projected) 1,40,000

Inventory on 31st March, 2,25,400Cash on 31st March, 30,000Gross purchases in March 1,00,000

Selling, General and Administrative expenses budgeted for April are Rs. 45,000 (which include Rs. 10,000 depreciation).