Question
This question has only TWO parts: a and b Mr Mattar has made the following estimates for his business, Farm-Tool, for the next four quarters:
This question has only TWO parts: a and b Mr Mattar has made the following estimates for his business, Farm-Tool, for the next four quarters:
Quarter ending | ||||
30 September 2020 | 31 December 2020 | 31 March 2021 | 30 June 2021 | |
$ | $ | $ | $ | |
Sales revenue | 200,000 | 240,000 | 240,000 | 200,000 |
Purchases | 75,000 | 75,000 | 75,000 | 75,000 |
Cost of sales | 100,000 | 96,000 | 120,000 | 80,000 |
Marketing and administration expenses | 40,000 | 90,000 | 80,000 | 80,000 |
Rental expenses | 18,000 | 18,000 | 18,000 | 18,000 |
Depreciation expenses | 1,000 | 1,000 | 1,000 | 1,000 |
All sales are made on credit terms. The historical and expected collection pattern is: 80 per cent is collected in the quarter of sale and 20 per cent in the following quarter. In order to obtain the best discount from suppliers, Farm-Tools will pay for the purchases on cash basis. The marketing and administration expenses are paid when incurred. Rental expenses are paid quarterly in advance under the five-year tenancy signed in January 2020. Mr Mattar wishes to renovate the shop at an estimated cost of $85,000. The renovation work will require an advance payment of 40% on 1 October and the
balance upon completion on 1 January 2021.
Sales revenue as at 30 June 2020 is $500,000.
The bank balance at 30 June 2020 is estimated as $100,000.
Required: (a) Prepare a cash budget (on a quarterly basis) for Farm-Tools for the 12 months ending 30 June 2021. (13 marks) (b) Explain whether there is sufficient fund for the intended renovation works. (2 marks)
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