QUESTION 2

You have been appointed as the Finance Manager of Durbar Tradings Sdn Bhd recently, a one year old small and medium enterprise.Your immediate task as the Finance Manager is to prepare cash budget for the months of May to July 2021. Your subordinate manage to gather basic information as you requested to facilitate preparation of cash budget.

Month Actual Sales Forecasted Sales

RM RM

April 2021 400,000

May 2021 300,000

June 2021 400,000

July 2021 500,000

You have called for a discussion with Mr.Ali the owner and incharge for purchang and operations and Mr.Zainal manager incharge for selling and distribution.

The company manage to establish good relationship with suppliers. Based on the information gathered, total purchases value is estimated to be 75% of current month sales. 60% of monthly purchases are cash and the balance will be fully settled in two equal payments in the following months.

Due to the competition in the industry, the company offers credit terms to quality customers. 30% of sales are collected immediately and the remaining payment will be collected in the following month of sales.

Although the company is only a year old, the owner recognizes the importance of having committed employees to develop the business. Mr.Ali also believes that it necessary to motivate employees, appreciate productivity and always priorities employees' welfare. Total salaries stands at RM 32,000 per month in May and June. There will be additional staff recruitment in July, total salary will be RM40,000 July onwards. Salaries are paid in the respective month. The company decided to subscripe for Employee medical card as an additional benefit for all employees including owner. The annual medical insurance premium is amounting to RM60,000 per year starting from May 2021. To motivate employees, Mr.Ali also express his intention to pay one month bonus amounting to RM40,000 in the month of March 2022. He requested the key management staffs to share the information among employees to create motivation to increase productivity, reduce wastage and improve organizational performance.

Mr.Ali informed in the meeting that he has engaged a tax consultant to assess corporate taxt for the current year .The company is due for corporate tax payment of RM 80,000 in the month of May.

Mr.Ali also informed the meeting that he has purchased a reconditioned lorry to facilate business transporation. The lorry was bought from a second hand vehicle dealer worth RM 240,000 in December 2020. Final payment of RM80,000 is due in the month of May 2021.The lorry is depreciated by RM 16,000 per year.

The company practices that all cash receipts during the day must deposit into company bank account via cash deposit machine on daily basis. The cash balance at the bank as at 30th April 2021 stands at RM 150,000.

You have recommended in the meeting to prepare and present cash flow statement quarterly basis. Mr.Ali accepted you proposal.

a.

Prepare cash budget for Durbar Tradings Sdn Bhd for the month of May, June and July 2021.

(15 marks)

b.

Mr. Ali, the owner is an architect by profession. Although he is ambitious and enterprising personality, he admits that he has a long way to master his finance knowledge. Due to his limited knowledge on cash budget, he is interested to know how specifically the compny can advance by preparing cash budget. You being the Financial management Manager descripe the prominent benefits of having cash budget.

(5 marks)

(Total 20 marks)