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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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