Creative Spirit Ltd Question Budgeting Creative Spirit Ltd, an advertising agency, is considering purchase of new equipment at the end of November. The equipment costs 200,000. The firm's management needs to evaluate how much cash will be available at the end of November, so that they can decide how to finance the new equipment. 3. The accounting department has provided you with the following information: 1. Cash available at the end of August is 10,000. 2. Sales in July were 220,000 and they are increasing of 10% monthly. 70% of sales is collected in cash, the remaining 30% is collected with two month's credit. 4. Monthly purchases are 60% of the previous month's sales. All purchases are on credit and are paid one month after purchase. 5. Wages and commission are paid each month. Wages are fixed at 12,000 per month and commission is 7% of the previous month's sales. 6. Management overheads are 20,000 per month 7. The company has set up a standing order to pay rent. The payments will start in September and the amount is 12,000 every two months. 8.. Telephone, heating and electricity bills of 17,000 are paid every month. 9. The depreciation charge on the firm's fixed assets is 13,000 per month. 10. Creative Spirit Ltd has borrowings of 150,000 with an annual interest rate of 10%. Interest is paid on a bi-monthly basis, with the next payment due in October 11. Tax of 30,000 has to be paid in November. 12. The minimum amount of cash the company wishes to hold at the end of each month is 20,000. You are required to: a) Prepare a cash budget for each month from September to November. Based on your findings advise Creative Spirit Ltd on how much external finance it will require for the new equipment 30 marks b) In the future Creative Spirit Ltd is considering using either botttom-up budgeting or top- down budgeting. Write a statement critically discussing the use of each of those approaches to budgeting. Explain advantages and disadvantages of each approach. 20 marks Total 50 marks