Kupa Ltd. has approached their local banker for an overdraft facility in 2021. The banker has asked to provide a cash budget for the first six months of 2021. The company has furnished you with the following information. Oct 2020 Nov 2020 Dec. 2020 Jan. 2021 Feb. 2021 Mar. 2021 Apr. 2021 May 2021 June 2021 July 2021 Aug. 2021 Sep 2021 Sales (Sh.‘000’) 190 170 200 180 220 240 210 160 180 220 240 220 Sales are made 40% cash. Of credit sales, 30% is collected in the month of sale, 40% one month after sale and 25% two months from sales Gross profit margin is 25%. Goods purchased in a month are sold two months after the month of purchase. Purchases are paid 30% one the month of purchase and the remainder two months thereafter. Cash Overheads average 10% of the monthly sales. Cash Operating expenses are 15% of the monthly sales. New equipment costing Sh. 24,000 will, be purchased for cash in April. Annual depreciation on this equipment will be 25% of the cost. Tax payments for Sh 40, 000 are due in January and March. The beginning cash balance in 2021 is expected to be Sh 250,000. This cash balance has to be maintained. In case of deficits, borrowing in multiples of Sh 20,000 is made at an interest of 4% per month. Interest must be paid when it accrues and the principal amount borrowed has to be paid soonest possible in the same multiples. Required: Prepare Kupa's Monthly cash payment for the first six months of 2021 Monthly cash receipts for the first six months of 2021 Monthly cash budget for the first six months of 2021
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Kupa Ltd. has approached their local banker for an overdraft facility in 2021. The banker has asked to provide a
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|
Oct 2020 |
Nov 2020 |
Dec. 2020 |
Jan. 2021 |
Feb. 2021 |
Mar. 2021 |
Apr. 2021 |
May 2021 |
June 2021 |
July 2021 |
Aug. 2021 |
Sep 2021 |
|
Sales (Sh.‘000’) |
190 |
170 |
200 |
180 |
220 |
240 |
210 |
160 |
180 |
220 |
240 |
220 |
- Sales are made 40% cash. Of credit sales, 30% is collected in the month of sale, 40% one month after sale and 25% two months from sales
- Gross profit margin is 25%. Goods purchased in a month are sold two months after the month of purchase. Purchases are paid 30% one the month of purchase and the remainder two months thereafter.
- Cash
Overheads average 10% of the monthly sales. - Cash Operating expenses are 15% of the monthly sales.
- New equipment costing Sh. 24,000 will, be purchased for cash in April. Annual
depreciation on this equipment will be 25% of the cost. - Tax payments for Sh 40, 000 are due in January and March.
The beginning cash balance in 2021 is expected to be Sh 250,000. This cash balance has to be maintained. In case of deficits, borrowing in multiples of Sh 20,000 is made at an interest of 4% per month. Interest must be paid when it accrues and the principal amount borrowed has to be paid soonest possible in the same multiples.
Required:
Prepare Kupa's
- Monthly cash payment for the first six months of 2021
- Monthly cash receipts for the first six months of 2021
- Monthly cash budget for the first six months of 2021
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