Narveson Ltd ends its financial year in December. In early January $2022,$ you have been requested

to assist in the presentation of a cash forecast. The following information is available regarding the

company$$s operations:

$1.$ Management believes the $2021$ sales level and pattern is a reasonable estimate of

$2022$ sales. Sales in $2021$ were as follows:

$

January $360,000$

February $420,000$

March $600,000$

April $540,000$

May $480,000$

June $400,000$

July $350,000$

August $550,000$

September $500,000$

October $400,000$

November $600,000$

December $800,000$

Total $6,000,000$

$2.$ Customers always pay as follows:

In month of sale $60\%$

In first month after sale $30\%$

In second month after sale $9\%$

Uncollectable $1\%$

$3.$ The purchase cost of sales averages $69\%$ of selling price. The company keeps a

constant inventory policy so that at the end of any month, the closing inventory is the

cost of the goods sold in the following month. All purchases are paid for on the tenth

day of the month following the purchase. Accounts payable including at $31$ December

$2021$ total $$248,400.$

$4.$ Payments in respect of fixed and variable expenses are forecast for the first three

months of $2022$ as follows:

January $$160,000$

February $$119,000$

March $$159,000$

$5.$ Equipment replacements are made at a rate which require a cash outlay of $$4,000$ per

month.

$6.$ A $$55,000$ payment of Corporation Tax is due for payment on $15$ March $2022.$

$7.$ At $31$ December $2021,$ the company had a bank loan with an unpaid balance of

$$280,000.$ The entire sum is due for repayment on $30$ March $2022$ together with

associated interest at the rate of $12\%$ per annum.

$8.$ The bank balance at $31$ December $2021$ is $$82,400.$

Required:

$($a$)$ Prepare a cash budget for January, February and March $2022.$ The statement

should show the amount of cash in hand $($or deficiency of cash$)$ at the end of each

month.

$(15$ marks$)$

$($b$)$ What advice would you give to the management of Narveson Ltd to deal with a

cash deficiency which arises or might arise in this period?Narveson Ltd ends its financial year in December. In early January $2022,$ you have been requested

to assist in the presentation of a cash forecast. The following information is available regarding the

company's operations:

Management believes the $2021$ sales level and pattern is a reasonable estimate of

$2022$ sales. Sales in $2021$ were as follows:

Customers always pay as follows:

The purchase cost of sales averages $69\%$ of selling price. The company keeps a

constant inventory policy so that at the end of any month, the closing inventory is the

cost of the goods sold in the following month. All purchases are paid for on the tenth

day of the month following the purchase. Accounts payable including at $31$ December

$2021$ total $$248,400.$

Payments in respect of fixed and variable expenses are forecast for the first three

months of $2022$ as follows: