Question
Anna Chan, the General Manager of Icy Investment Limited, faced the financial difficulty due toCOVID-19.ShehasalreadyaskedherAccountanttopreparethebudgetcashflowandtoproject the amount of cash shortage in the coming year. Then
Anna Chan, the General Manager of Icy Investment Limited, faced the financial difficulty due toCOVID-19.ShehasalreadyaskedherAccountanttopreparethebudgetcashflowandtoproject the amount of cash shortage in the coming year. Then she will plan to negotiate with banker toarrangethebankloan withher personal guaranteeto solvethe financial problem.
Icy Investment Limited from Thailand has provided the following budget amounts for the budgetperiod in 2021.
$ | |
Beginningcashbalance | 30,000 |
Cashcollections | 683,000 |
Purchase of merchandise inventory | 349,400 |
Sellingandadministrativeexpenses | 70,700 |
Capitalexpenditures | 88,600 |
A minimum cash balance of $280,000 is required to be maintained. The company can borrow inincrements of $10,000 as and when required. Assume the company can borrow the needed funds attheend ofthe period.
Question:
a) Calculatetheending cashbalanceforthebudget period.
b) Identifyandexplainatleasttwowaysthatcompanycanchangeitsinventorylevelinordertoachieve a better cash budget performance.
c) Anna Chan has been discussing with the directors of Icy Investment Limited about the stepstaken by accountants to ensure that financial statements are useful. She mentioned that theusefulness of information in the financial statements is determined primarily by two qualitativecharacteristics known as relevance and reliability in the view of the accounting profession.Explain tothedirectorsthemeaning ofrelevance andreliability.
d) The financial director has not discussed the proposed budgeting system with junior managers.Sheisconsideringimposingproductionandsalesbudgets uponthem,without theirinvolvement. Explain the following approaches to budget setting and give two advantages ofeachapproach.
- A"top-down"approach;
- A" bottom-up" approach.
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