IKA Electricals Ltd is a major distributor of electrical appliances for households, with seven distribution outlets in the country. Rapid expansion has created the need for careful planning of cash requirements to ensure that the company is able to replenish inventory adequately and meet payment schedules to creditors. The banker of the company, CBG Bank, has agreed to provide credit towards the growth of IKA Electricals, on account that a minimum balance of GHS8,200 is kept in the company’s current account at the end of each month. When the balance goes below GHS8,200 the bank automatically extends the line of credit in multiples of GHS1,000 so that the current account balance is at least GHS8,200 at month-end. The following cash receipts and disbursements data relate to the first quarter of 2021. GH¢ Estimated beginning cash balance 8,800 Estimated cash sales: January 14,000 February 29,000 March 44,000 Sales on account: October, 2020 (Actual) 130,000 November, 2020 (Actual) 104,000 December, 2020 (Actual) 128,000 January 135,000 February 142,000 March 188,000 Projected cash collection of sales on account is estimate to be 70% in the month following the month of sale, 20% in the second month following the month of sale, and 6% in the third month following the sale. The 4% beyond the third month following the month of sale is determined to be uncollectible. All inventory purchases are made on account as IKA Electricals has excellent credit record with all vendors, because of a strong payment history. The following information regarding inventory purchases is available: GHS December, 2020 (estimated) 120,000 January, 2021 (estimated) 112,000 February, 2021 (estimated) 128,000 March, 2012 (estimated) 95,000 Cash disbursement for inventory are made in the month following the month of purchase, receiving an average cash discount of 3%. Monthly cash disbursements for operating expenses during January, 2021, February, 2021 and March, 2021 are estimated to be GHS38,000, GHS41,000 and GHS46,000 respectively. Required: Prepare for IKA Electricals the following: 1. Receivables collection schedule 2. Payables payment schedule 3. Cash budget for the first quarter of 2021, showing discounts, and credit line activities, where applicable.
IKA Electricals Ltd is a major distributor of electrical appliances for households, with seven distribution outlets in the country. Rapid expansion has created the need for careful planning of cash requirements to ensure that the company is able to replenish inventory adequately and meet payment schedules to creditors.
The banker of the company, CBG Bank, has agreed to provide credit towards the growth of IKA Electricals, on account that a minimum balance of GHS8,200 is kept in the company’s current account at the end of each month. When the balance goes below GHS8,200 the bank automatically extends the line of credit in multiples of GHS1,000 so that the current account balance is at least GHS8,200 at month-end.
The following cash receipts and disbursements data relate to the first quarter of 2021.
|
|
GH¢ |
|
Estimated beginning cash balance |
8,800 |
|
Estimated cash sales: |
|
|
January |
14,000 |
|
February |
29,000 |
|
March |
44,000 |
|
Sales on account: |
|
|
October, 2020 (Actual) |
130,000 |
|
November, 2020 (Actual) |
104,000 |
|
December, 2020 (Actual) |
128,000 |
|
January |
135,000 |
|
February |
142,000 |
|
March |
188,000 |
Projected cash collection of sales on account is estimate to be 70% in the month following the month of sale, 20% in the second month following the month of sale, and 6% in the third month following the sale. The 4% beyond the third month following the month of sale is determined to be uncollectible.
All inventory purchases are made on account as IKA Electricals has excellent credit record with all vendors, because of a strong payment history.
The following information regarding inventory purchases is available:
|
|
GHS |
|
December, 2020 (estimated) |
120,000 |
|
January, 2021 (estimated) |
112,000 |
|
February, 2021 (estimated) |
128,000 |
|
March, 2012 (estimated) |
95,000 |
Cash disbursement for inventory are made in the month following the month of purchase, receiving an average cash discount of 3%.
Monthly cash disbursements for operating expenses during January, 2021, February, 2021 and March, 2021 are estimated to be GHS38,000, GHS41,000 and GHS46,000 respectively.
Required:
Prepare for IKA Electricals the following:
1. Receivables collection schedule
2. Payables payment schedule
3.
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