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The Valder Ltd. commenced operations in December 2019 with a capital of $600,000 which was raised through an issue of 600,000 ordinary shares of $1
The Valder Ltd. commenced operations in December 2019 with a capital of $600,000 which was raised through an issue of 600,000 ordinary shares of $1 each. The proceeds of the share issue were paid into the company bank account. During the course of December, a number of transactions took place and these are summarized below: The following additional information is available. i. Sales are budgeted as follows: $80,000 in January; $160,000 in February and $240,000 in subsequent months. Fifty per cent of the sales will be cash sales and the other fifty per cent credit sales. The period of credit extended to customers will be one month. ii. The cost of raw materials will amount to 40% of the sales revenue. Half the materials cost for any one month will be paid in cash; the other half will be paid for during the month of purchase. The company intends to keep a stock of raw materials of $10,000 throughout the year. iii. Direct wages will be incurred at the rate of $50,000 per month. No time lag is expected here. iv. Other expenses- depreciation on premises, plant and equipment will be calculated on a straight-line basis. The tools will be re-valued annually and it is expected that annual losses will amount to 20 per cent. Tools are planned to be sold for $18,000 in May before the semi-annual stock count. v. All other expenses will be incurred at the rate of $40,000 per month- payable one month in arears vi. Taxation of $25,000 are to be paid quarterly in order to clear the outstanding balance. You are required to: a. Prepare a cash budget for the first six months of 2020 for Valder Company. (25 marks)
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