QUESTION $1$

The board of directors of NY Ltd have been reviewing the company's performance for $2023.$ One of

the directors is very concemed about the liquidity position of the company.

The Company's financial year end is $30$ th A pril and as a result, it has been agreed to immediately

produce a revised Cash Budget for the first FOUR months of $2024.$

You have been asked to prepare this Cash Budget and you have been supplied with the following

information:

Sales have been steady at $400,000$ per month in the last three months of $2023.$

However, it is expected that this will increase by $100,000$ per month for the next four

months as a result of a recent marketing campaign.

$20\%$ of sales are cash sales.

$80\%$ of sales are on credit and customers pay in the month following sale.

However, $10\%$ of these credit sales turn out to be bad debts.

The cost of the marketing campaign is $60,000$ and this will be paid to the agency in

February $2024.$

Cash purchases will be $360,000$ in January and February and will rise to $480,000$ in

March and April. The supplier does not offer any credit.

Wages are estimated at $120,000$ per month and a $5\%$ increase is due to be paid from

January onwards.

NY Ltd$.$ has an outstanding loan of $100,000$ with its bank. Interest is charged at the rate

of $10\%$ per annum and is paid half$-$yearly in April and October.

NY Ltd$.$ will purchase some additional machinery in January for $96,000.$ The supplier

will allow $60$ days credit. NY$,$ Ltd$.$ normally depreciates machinery over four years so it

will charge depreciation of $24,000$ each year or $2,000$ in each month's accounts.

o NY Ltd$.$ charges rent of $10,000$ every month in its accounts. It pays the rent quarterly

in advance in February, May, August and November.

NY Ltd$.$ will have an opening cash balance of $100,000$ at $1^($st $)$ January $2024.$

You are required to:

$($a$)$ Prepare a Cash Budget for the last FOUR months of the financial year to April $2024$ for NY

Ltd$.$

$($b$)$ Suggest FIVE ways by which NY Ltd could improve the cash position for the period as

calculated in part $($a$).$