Treasury Management Vs Cash Management Answer To Warm Up Exercises
Treasury Management Vs Cash Management Answer To Warm Up Exercises
Treasury Management Vs Cash Management Answer To Warm Up Exercises
Problem 1
From the following information, prepare cash budget for the month of January to April:
Wages to be paid to workers Rs. 5,000 each month. Balance at the bank on 1st Jan. $8,000.
It has been decided by the Management that:
(i) In case of deficit fund within the limit of $10,000 arrangements can be made with bank.
(ii) In case of deficit fund exceeding Rs. 10,000 but within the limits of $42,000 issue of
debentures is to be preferred.
(iii) In case of deficit fund exceeding $42,000, issue of shares is preferred (considering the
fact that it is within the limit of authorized capital).
Solution
Particulars Jan. Feb. Mar. Apr.
Receipts: $ $ $ $
Opening balance 8,000 15,000 – –
Sales 60,000 40,000 45,000 40,000
Issue of debentures – 30,000 41,000 –
Issue of shares – – – 55,000
Total 68,000 85,000 86,000 95,000
Less: Payments
Purchases 48,000 80,000 81,000 90,000
Wages 5,000 5,000 5,000 5,000
Closing Cash 53,000 85,000 86,000 95,000
15,000 – – –
Problem 2
Prepare Cash Budget of a Company for April, May and June 2019 in a columnar form using the
following information:
Month Sales Purchase Wage Exp.
Jan. (Actual) 80,000 45,000 20,000 5,000
Feb. 80,000 40,000 18,000 6,000
(Actual)
March 75,000 42,000 22,000 6,000
(Actual)
April Budget 90,000 50,000 24,000 6,000
May Budget 85,000 45,000 20,000 6,000
June Budget 80,000 35,000 18,000 5,000
Problem 3
From the following information prepare a monthly cash budget for the three months ending 31st
Dec.2019.
i) Credit terms are:
(a) Sales — 3 months to debtors. 10% of sales are on cash. On an average, 50% of credit
sales are paid on the due dates while the other 50% are paid in the month following
(b) Creditors for material — 2 months.
Cash
Budget
Period: 3 months ending 31 Dec. 2019
Details: Ocr. ($) Nov. ($) Dec. ($)
Balance 1,500.00 537.5 350
b/d
Receipts (Estimated):
Sales 3,212.50 3,462.50 3,712.50
Capital – 500 –
Dividends – – 250
Total (A) 4,712.50 4,500 4,312.50
Payments:
Creditors 2,400.00 2,250.00 2,300.00
Wages 787.5 875 975
Overheads
:
Production 300 325 350
Adm. S. & 187.5 200 212.5
D.
Pref. – – 2,500.00
Dividend
Income tax – – 500
Plant and 5,00.00 5,00.00 5,00.00
Machinery
500 each
Total (B) 4,175.00 4,150.00 7,337.50
Year
Balance c/d 537.5 350 (-3,025)
(A – B)
Wages Calculation
1/4 wages of September and 3/4 wages of Oct. Thus,
Solved Example:
The directors of Kingston & Co. were concerned about the the company’s cash flow. They
requested their accountant to prepare a cash budget for the four months ending 30 April 2016.
(i) The following sales figures are for the months of November 2015 to June 2016. The figures
from January 2016 onward are estimated:
Half the sales are normally paid for in the month in which they occur and the customers are rewarded
with a 5% cash discount. The remaining sales are paid for net in the month following the sale.
(ii) Goods are sold at a mark-up of 25% on the goods purchased one month before sale. Half of the
purchases are paid for in the month of purchase and a 4% prompt settlement discount is received. The
remainder is paid in full in the following month.
(iii) Wages of $12000 per month are paid in the month in which they are earned. It is expected that the
wages will be increased by 10% from 1 March 2016.
(iv) Rent will cost $60000 per annum payable three monthly in advance in January, April, July and
December each year.
(v) The directors have arranged a bank loan of $60000 which would be credited to company’s current
account in February 2016.
(vi) The half-yearly interest on 200000, 8% debentures of $1 each is due to be paid on 15 January 2016.
(vii) The ordinary dividend of $12000 for the year 2015 will be paid in March 2016.
Required:
Prepare a cash budget for the four months ended 30 April 2016. Give your answers to the nearest dollar
($).
Solution:
Cash Budget
Problem 5
A newly started company Quick Co. Ltd., wishes to prepare cash budget from January.
Prepare a cash budget for the first six months from the following estimated revenue and
expenditure:
overheads
Cash balance on 1st January 1999 was Rs. 10,000. A new machine is to be installed at Rs.
Sales commission @ 5% on total sales is to be paid within the month following actual sales. Rs.
10,000 being the amount of 2nd call may be received in March. Share premium amounting to
ADVERTISEMENTS:
Solution:
ADVERTISEMENTS:
Details
Jan Feb March April May June
A. balance 10000 18000 29800 20,000 6100 8800
b receipts
cash sales 50% 10000 11000
12000 13000 14000 15,000
debtors - 10000
11000 12000 13000 14,000
capital - 10000
share premium - 2000
A+B total 20,000 39000 64800 45,000 33,100 37,800
C payments -
material - 20000 14000 14,000 12000
wages 2000 4200 4500 4600 4700 4800
production OH - 3200 3300 3300 3,400 3500
selling and admin - 800 900 800 900 900
commission - 1000 1100 1200 1,300 1400
machinery 15000 15000
C Total 2000 9200 44,800 38,900 24,300 22,600
Balance A+B+C 18000 29800 20000 6100 8800 15200
Sometimes, it is required to forecast cash or working capital and this can be computed in the
usual way as described above. Further consideration is necessary in respect of lag in payment