Question 3 (25 Marks) Use the following information which relates to Ada Limited to answer the questions which follow:

Information:

1. Cash at bank on 1 January 2021 amounted to R155 000.

2. Projected sales per quarter for 2021: First quarter R450 000 Second quarter R750 000 Third quarter R870 000 Fourth quarter R880 00 Sixty percent (60%) of the sales are for cash and forty percent (40%) are on credit. Cash customers are entitled to a 5% cash discount.

3. Collection of credit sales: 55% of the credit sales are collected in the quarter of the sale. 35% is collected in the following quarter and the balance is written off as a bad debt.

4. Purchases for each quarter are expected to be as follows: First quarter R120 000 Second quarter R125 000 Third quarter R130 000 Fourth quarter R170 000 All purchases are on credit. 70% of the purchases will be paid for in the quarter of purchase and the remaining 30% in the following quarter.

5. Fixed overheads total R180 000 per year and are paid for equally each quarter.

6. Administrative expenses are paid for in the quarter in which they are incurred and are estimated at a total of R15 000 per quarter.

7. An investment of R100 000 matures on 30 June 2021, and interest of R12 000 will also be received on this date.

Required:

Prepare the Debtors Collection Schedule for the four quarters of 2021. (6 marks)

Prepare the Cash Budget for the four quarters of 2021. (14 marks)

Discuss advantages and disadvantages of preparing budgets (5marks)