This study source was downloaded by 100000883879287 from CourseHero com on 04 10 2024 05 58 39 GMT 05 00 https www coursehero com file 179177748 CASE 3 GROUP 6 FAMACOdocx MANAGEMENT ACCOUNTING CASE FINANCIAL BUDGETING The president of Opal Products has just approached the company s bank with a request for a P30 000 90 day loan The purpose of the loan is to assist the company in acquiring inventories in support of peak April sales Since the company has had some difficulty in paying off its loans in the past the loan officer has asked for a cash budget to help determine whether the loan should be made The following data are available for the months April June during which the loan will be used a On April 1 the start of the loan period the cash balance will be P26 000 Accounts receivable on April 1 will total P151 500 of which P141 000 will be collected during April and P7 200 will be collected during May The remainder will be uncollectible b Past experience shows that 20 of a month s sales are collected in the month of sale 75 in the following sale and 4 in the second month following sale The other 1 represents bad debts that are never collected Budgeted sales and expenses for the period follow AprilMayJuneSales P200 000P300 000P250 000Merchandise purchases 120 000 180 000 150 000Payroll 9 000 9 000 8 000Lease payments 15 000 15 000 15 000Advertising 70 000 80 000 60 000Equipment purchases 8 000 Depreciation 10 00010 000 10 000 c Merchandise purchases are paid in full during the month following purchase Accounts payable for merchandise purchases on March 31 which will be paid during April total P108 000 d In preparing the cash budget assume that the P30 000 loan will be made in April and repaid in June Interest on the loan will total P1 200 If the company needs a minimum cash balance of P20 000 to start each month can the loan be repaid as planned Explain Show supporting computations by preparing a CASH BUDGET Schedule of Expected Cash Collections This study source was downloaded by 100000883879287 from CourseHero com on 04 10 2024 05 58 39 GMT 05 00 https www coursehero com file 179177748 CASE 3 GROUP 6 FAMACOdocx AprilMayJuneQuarterFrom accounts receivableP141 000P7 200P148 200From April salesP200 000 20 P40 000P200 000 75 P150 000P200 000 4 P8 000P198 000From May salesP300 000 20 P60 000P300 000 75 P225 000P285 000From June salesP250 000 20 P50 000P50 000Total cash collectionsP181 000P217 200P283 000P681 200 Notice that the merchandise purchases are paid in full during the month following the purchase Thus we added the merchandise purchases in April tothe cash disbursements for the month of May instead Depreciation does not result in cash outflow and it does not deduct or add anything to the cash budget Cash deficiency repayments and interest are indicated by a minus sign Opal ProductsCash Budget AprilMayJuneQuarterBeginning cash balanceP26 000P27 000P20 200P26 000Add receipts Collections from customers181 000217 200283 000681 200Total cash available207 000244 200303 200707 200Less cash disbursements Merchandise purchases108 000120 000180 000408 000 Payroll9 0009 0008 00026 000 Lease payments15 00015 00015 00045 000 Advertising70 00080 00060 000210 000 Equipment purchases8 000008 000Total cash disbursements210 000224 000263 000697 000Excess deficiency of cash available over disbursements 3 000 20 20040 20010 200Financing Borrowings30 0000030 000 Repayments00 30 000 30 000 Interest00 1 200 1 200 Total financing30 0000 31 200 1 200 Ending cash balance P27 000P20 200P9 000P9 000As shown in the Cash budget the minimum cash balance of P20 000 the company needs to start each month is maintained or even exceeded in the periods covered by the budget April P26 000 May P27 000 June P20 200 Despite the repaymentand interest in the month of June the company is still able to maintain a positive This study source was downloaded by 100000883879287 from CourseHero com on 04 10 2024 05 58 39 GMT 05 00 https www coursehero com file 179177748 CASE 3 GROUP 6 FAMACOdocx Powered by TCPDF www tcpdf org cash balance P9 000 Thus it means that the loan can be repaid as planned in case the company will accept the request