Figure 7.18 shows a liquid-level system in which two tanks have cross-sectional areas A1 and A2, respectively. The volume flow rate into tank 1 is qi. A pump is connected to the bottom….
Prepare a cash budget for each of the three months January to March.
On 1 January the summary balance Sheet of Mercury Company Ltd. Was as follows:
Share Capital 40,000 Machinery at cost 80,000
Reserves 20,000 less
Loans 15% 40,000 Accum. Depreciation (19,200)
Proposed dividends 1,000 Stocks 24,200
Overdraft 9,000 Debtors 25,000
The following are expected during the next three months:
Sales Purchases Expenses
£ £ £
January 150,000 100,000 20,000
February 200,000 150,000 25,000
March 300,000 280,000 30,000
All sales are on credit and the collections have the following pattern:
During the month of sale 80% (a 4% discount is given for payment in this period)
In the subsequent month 20%
– Payment for the purchase is made in the month of purchase in order to take advantage of a 10% prompt settlement discount, calculated on the gross purchase figures shown above.
– Stock levels are expected to remain constant throughout the period.
– Depreciation of machinery is calculated at a rate of 12% p.a on cost. The appropriate portion for each month January – March is included in the expenses figures above. Expenses are paid for in the month in which they are incurred.
– The proposed dividend will be paid in January.
– The interest for the three months will be paid in March.
i. Prepare a cash budget for each of the three months January to March.
ii. Prepare a forecast Trading Profit and Loss Account for the period.
iii. Prepare a forecast Balance Sheet as at 31 March.
iv. Briefly explain why the change in cash balance between 1 January and 31 March is not the same as the profit (loss) figure for the period.
v. Briefly explain the functions of a cash budget within an organization.