Two friends are partners in a bookstore that sells popular fiction and non$-$fiction books as well

as magazines and a wide range of office stationery and supplies. The bookstore is a recent start$-$

up$,$ and they intend to manage and operate the store in a professional and efficient manner with

the objective of maintaining the viability of the business.

One of their financial objectives is to implement effective cash planning. To achieve this

objective, they need to implement a cash budget for the business.

The partners have done an analysis of the business environment, the economic outlook for the

year and the current performance of the business and then prepared a sales, purchases and

expenditures forecast for the period January to March $2025.$

The partners approached you for assistance to prepare the cash budget and analyse and

comment on the anticipated cash position of the business for the budget period.

The partners provided you with the following information:

$*$Note: These expenses include all other committed and anticipated expenses but exclude the

projected purchases expenditure, which are separately stated.

Additional information:

Cash sales constitutes $10\%$ of the projected total sales.

The credit policy of the business requires of customers who purchase on credit to repay

their purchases as follows:

$10\%-$ One month after the month of purchase

$30\%-$ Two months after the month of purchase

$60\%-$ Three months after the month of purchase

Cash purchases constitute $60\%$ of monthly purchases.

The company must repay $70\%$ of purchases made on credit one month after the month

of purchase and the balance two months after the month of purchase.

All other monthly expenses are R$56600,$ R$60000$ and R$65000$ for January to March,

respectively.

The cash balance on $1$ January $2025$ is R$120000.$

The partners require of the business to maintain a monthly minimum cash balance of

R$60000.$

Required:

$2\mathrm{.}1$ Prepare a cash budget for January $-$ March $2025$ using the information provided. $(20)$

$2\mathrm{.}2$ Use the cash budget which you prepared to explain to the partners your observations

and concerns about the projected cash flows.