Concept explainers
a.
To prepare: Cash budget of W Incorporation.
Cash Budget:
Cash budget is prepared to ascertain the amount of cash after a given period of time. Cash budget is a statement that contains the information of cash receipts and cash payments.
Closing balance of cash is calculated with the help of cash budget.
a.
Explanation of Solution
Prepare cash budget.
W Incorporation | ||||
Cash budget | ||||
($ in millions) | ||||
Particulars
|
Q1 ($) millions |
Q2 ($) millions |
Q3 ($) millions |
Q4 ($) millions |
Beginning cash balance | 32 | 37.50 | 13.1 | 16.7 |
Net cash inflows | 5.5 | (24.7) | 3.6 | 25.4 |
Ending cash balance | 37.5 | 12.8 | 16.7 | 42.1 |
Minimum cash balance | (15) | (15) | (15) | (15) |
Cumulative surplus (deficit) | 22.5 | (2.2) | 1.7 | 27.1 |
Table (1)
Working Note:
The average collection period is of 45 days, it means the cash collection is 50% of current and 50% of old balance of credit sales.
The average accounts payable period is of 36 days it means the firm has to pay 60% of current quarter purchase and 40% of previous quarter purchase in current quarter.
Table that shows calculation of
Particulars
|
Q1 ($) millions |
Q2 ($) millions |
Q3 ($) millions |
Q4 ($) millions |
Beginning receivables | 34 | 52.50 | 45 | 61 |
Sales | 105 | 90 | 122 | 140 |
Collection on account (A) | (86.5) | (97.50) | (106) | (131) |
Ending receivables | 52.5 | 45 | 61 | 70 |
Purchase | 41 | 55 | 63 | 54 |
Payment of accounts | 43.5 | 49.2 | 59.8 | 57.6 |
Wages, taxes and expenses
|
31.5 | 27 | 36.60 | 42 |
Capital expenditure | 40 | |||
Interest and dividend | 6 | 6 | 6 | 6 |
Total cash disbursement (B) | 81 | 122.2 | 102.4 | 105.6 |
Net cash inflows
|
5.5 | (24.7) | 3.6 | 25.4 |
Table (2)
Calculate collection on account receivables in Q1,
Calculation of ending receivable in Q1,
Calculation of purchase of Q1,
Calculation of payment to accounts payable in Q1,
Calculate collection on account receivables in Q2,
Calculation of ending receivable in Q2,
Calculation of purchase of Q2,
Calculation of payment to accounts payable in Q2,
Calculate collection on account receivables in Q3,
Calculation of ending receivable in Q3,
Calculation of purchase of Q3,
Calculation of payment to accounts payable in Q3,
Calculate collection on account receivables in Q4,
Calculation of ending receivable in Q4,
Calculation of purchase of Q4,
Calculation of payment to accounts payable in Q4,
b.
To prepare: A statement that shows short term financial plan and the net cash cost.
b.
Explanation of Solution
The statement of financial plan is,
Particulars
|
Q1 ($) millions |
Q2 ($) millions |
Q3 ($) millions |
Q4 ($) millions |
Beginning cash balance | 15 | 15 | 15 | 15 |
Net cash inflows | 5.5 | (24.7) | 3.6 | 25.4 |
New short term investment | (6.14) | (2.53) | (25.45) | |
Income from short term Investment | 0.34 | 0.46 | 0.05 | |
Sale of short term investment | 22.84 | |||
New short term borrowing | 1.1 | |||
Interest on short term borrowing | (0.03) | |||
Short term borrowing repaid | (1.1) | |||
Ending cash balance | 15 | 15 | 15 | 15 |
Minimum cash balance | (15) | (15) | (15) | (15) |
Cumulative surplus (deficit) | 0 | 0 | 0 | 0 |
Beginning short term Investment | 17 | 22.84 | 2.53 | |
Ending short term Investment | 22.84 | 0 | 2.53 | 28.07 |
Beginning short term debt | 0 | 0 | 1.1 | 0 |
Ending short term debt | 0 | 1.1 | 0 | 0 |
Table (3)
Calculation of net cash cost,
Working Note:
Calculation of new short term investment in Q1 is,
Calculation of income from new short term investment in Q1 is,
Calculation of beginning short term investment Q1,
Calculation of ending short term investment Q1,
Calculation of income from new short term investment in Q2 is,
Calculation of new short term borrowing Q2,
Calculation of new short term investment Q3,
Calculation of income from short term investment in Q4,
Calculation of new short term investment in Q4,
Calculation of ending short term investment Q4,
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