Question 5 (20 marks, 36 minutes) TMK Enterprises prepares budgets quarterly. They are currently in the process of preparing the budget for the first quarter of 2020 covering the period of January to March 2020. You are the management accountant of TMK Enterprises and you have gathered the following information pertaining to the period: 1. Sales for the next four month period: Month N$ January 40 000 February 70 000 March 50 000 April 45 000 20% of customers pay cash and 80% buy on credit. Credit sales are collected over a three month period, 15% in the month of sale, 70% in the month following sale and 15% in the second month following sale. Bad debts are estimated at 5% on all credit sales. Total sales revenue in November 2019 amounted to N$30 000 and December 2019's total sales revenue amounted to N$36 000. 2. Cost of sales constitutes 60% of the sales revenue for each month. 3. It is company policy to keep closing inventory levels at 75% of the following month's cost of sales. Opening inventory in January 2020 is expected to amount to N$18 000. 4. 50% of the inventory purchased is paid for in cash in the month of purchase. The balance is paid for in the month following purchase. At the 31 December 2019, N$11 700 was owing to suppliers. 5. The business expects to receive a donation of N$20 000 in the middle of January 2020. 6. A delivery motorcycle which cost N$8 000 when purchased second hand four years ago is expected to be sold in March 2020 for N$3 000. At the time of sale, the net book value of the motor cycle will be N$1 800. 7. Office furniture amounting to N$4 500 will be bought and paid for in February 2020. The furniture will be depreciated on a straight line basis over three years. 8. Other operating expenses are paid in the month they are incurred. Operating expenses have been estimated as follows: Month October N$ November 12 800 December 18 900 14 600 month. The above operating costs figures include depreciation on existing assets of N$2 000 per 9. The cash balance on 1st January 2020 is expected to amount to N$8 000.Required Marks 5.1 Compute the purchases figure for each month from January 2020 to March 2020. 5 5.2 Prepare a cash budget on a monthly basis (in columnar format) for the period January 2020 to March 2020 (Show all calculations). 12 5.3 List any three reasons why companies prepare cash budgets. 3 Total 20 END OF QUESTION PAPER