MA Question 1 20 marks

You have recently appointed Management Accountant of Must Survive Pte Ltd, a company operating in Singapore. The owner and CEO of the company has requested that you prepare a cash budget for the last three months of the current year ended 31 December 2020. The CEO is very concerned about the liquidity crisis that the company is facing amid the evolving Covid 19 situation.

He supplies you with the following information:

(a) Cash balance as at 1 st October 2020 is expected to be of $10,000.

(b) Sales are expected to be about as follows:

$

September 2020 230,000

October 2020 200,000

November 2020 140,000

December 2020 150,000

To ensure adequate cash inflows from receivables, the company has decided to allow a generous cash discount of 10% if payment is made in the month of sales. It is estimated that 40% of the receivables will pay in the month of sales, 60% will pay in the month following sale.

(c) Purchases are expected to be 50% of the sales value of that month. Suppliers offer the company a one month credit term.

(d) Salaries have been set at $20,000 per month, payable at the end of the month.

(e) Administrative overheads are set at $10,000 per month. The overheads are paid in the month incurred. Overheads include depreciation of $3,000 per month.

(f) A machine is to be purchased in October 2020 for $80,000 in total. It will be paid for in four equal monthly installments starting in October 2020.

(g) In light of the Covid 19 situation, the company expects to receive a new government grant of $20,000 in total. This will be received in four equal monthly installments, starting in October 2020.

Required:

1) Prepare a Cash Budget for the business for each of the three months from October 2020 to December 2020 showing the ending cash balance at the end of each month. (15 marks)

2) The CEO has read an article about the concept of Beyond Budgeting. He has requested you to provide a brief explanation of how Beyond Budgeting differs from traditional budgeting systems. (5 marks)