Clean Enterprise Limited

Prepare the cash budget for the quarter ending March 31, 2022, incorporating any relevant assumption(s) you made with the information provided below. Round all calculations to the nearest $’000.

	2021	2022	2022	2022
	Dec	Jan	Feb	March
	$'000	$'000	$'000	$'000
Cash sales	12,000	5,000	6,000	10,000
Credit sales	30,000	12,000	10,000	26,000
Credit purchases	40,000	18,000	40,000	10,000
Salaries	5,000	5,000	5,000	7,000
Utilities	500	300	300	400
Depreciation	1,000	1,000	1,000	1,000
Property taxes	-	-	-	100
Insurance	-	3,000	-	-
Advertising	500	-	100	300
Statutory deductions	1,500	1,800	1,500	2,100
Other expenses	300	100	100	200

Additional information:

1. Collection from credit customers are normally 60% in the month of sale, 30% in the month following sale and the balance of 10% in the second month following sale.

2. The credit sale for November 2021 was $14,000,000.

3. Including in the November 2021 credit sales is a credit sale to Hard Luck Limited. The company (Hard Luck Limited) purchased $100,000 goods on November 1, 2021. A notice in the newspaper on November 6, 2021 indicated that a loan creditor of the company had placed the company into receivership.

4. Credit purchases are paid for in the month following purchase.

5. The company is expected to invest $12,000,000 on fixed deposit for six months on December 1, 2021. The company will receive a 5% rate of return per annum. The interest income will be received on a monthly basis.

6. A bonus of 2 % of total sales for December 2021 will be paid to staff members in January 2022.

7. Salaries, utilities, property taxes, insurance, advertising and other expenses are paid in the month incurred.

8. Financial institutions charge no penalty for paying a loan before the due date. Financial institutions will charge a penalty of $5,000 if a company liquidates its investment early.

9. Statutory deductions are paid for in the month following the payroll deductions. Corporation tax for 2022 is estimated at $1,200,000 and is normally paid on a quarterly basis. The first payment is normally made on March 31.

10. The expected closing cash and bank balance on December 31, 2021, is expected to be $8,000,000.

11. The company wants to purchase computer equipment costing $8,000,000 in March 2022 and wants to obtain an overdraft to purchase the computer equipment. The computer equipment is expected to last for 4 years. The company will also need to purchase software in March 2022 at a cost of $1,000,000. No funds have been identified to purchase the software.

12. The company’s Statement of Financial Position reveals a loan amounting to $4,000,000 at an interest rate of 10% per annum. The loan is to be repaid on February 28, 2022. The company pays the interest on a monthly basis.

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