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Kindly solve it urgently. Q No.15 Mrs. Ahmed runs a children toy shop named ENJOY COMPANY. In July 2010, she is in process of preparing
Kindly solve it urgently.
Q No.15 Mrs. Ahmed runs a children toy shop named ENJOY COMPANY. In July 2010, she is in process of preparing her company's first cash budget to make liquidity planning. She predicts sales for August 2010 and September 2010 will be Rs.35,000 and Rs.28,000, respectively. All toys are purchased to resell at a markup of 80% of cost. Starting from August 2010 onward, 40% of the sales are cash sales. The credit sales should be collected in the following manners : 70% collected in the month of sale 28% collected in the next month 2% is estimated to be uncollectible in the month of sale On 1 August 2010, customers owe the shop Rs.350 for sales made in June 2010 and Rs.3,150 for sales made in July 2010 (Balance of accounts receivable as at 1 August is Rs.350 + Rs.3,150 = Rs.3,500). Ahmed estimated in August 2010 that the balance of receivables of Rs.350 resulting from credit sales in June 2010 will entirely go uncollected and all balance of receivables of Rs.3,150 from credit sales in July 2010 will entirely be collected in August 2010. To be a cushion against short of toys available for sale, she planned to maintain balance of inventory of toys at the end of each month equal to 20% of next month's cost of goods sold. The toys purchases for July are Rs.13,125. All toys purchases are made on credit and due within 10 days after purchased. This mean that approximately two-third (2/3) of each month's purchases are paid for in the month of purchases and one-third (1/3) of each month's purchases are paid for in the month after the purchases were made. On 1 August 2010, the company has balance of accounts payable of Rs.3,850 whereby payments to suppliers are due in August in entirety The following selling general and administrative (SG&A) expenses are expected to incur in August 875 On 1 August 2010, the company has balance of accounts payable of Rs.3,850 whereby payments to suppliers are due in August in entirety The following selling general and administrative (SG&A) expenses are expected to incur in August 2010: Salaries Rs. 2,800 Utilities Rent (prepayment) 5,250 Gasoline 350 Advertising (prepayment) 875 Depreciation 1,200 Bad debt ? Salaries and gasoline are paid for when the expense is incurred. Utilities are paid for in the following month (the July utility bill was Rs.787). Three-month rent was prepaid on 1 July 2010. On 1 August 2010, an advance of Rs.1,750 was given to an advertising agency for 2 months of promotion The cash balance as at 1 August 2010 is Rs.2,625. Required : Prepare the cash budget and budgeted income statementStep by Step Solution
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