Reference no: EM133069989
Question - Mr Mattar has made the following estimates for his business, Farm-Tool, for the next four quarters:
|
|
Quarter ending
|
|
|
30 September 2020
|
31 December 2020
|
31 March 2021
|
30 June 2021
|
|
|
$
|
$
|
$
|
$
|
|
Sales revenue
|
200,000
|
240,000
|
240,000
|
200,000
|
|
Purchases
|
75,000
|
75,000
|
75,000
|
75,000
|
|
Cost of sales
|
100,000
|
96,000
|
120,000
|
80,000
|
|
Marketing and administration expenses
|
40,000
|
90,000
|
80,000
|
80,000
|
|
Rental expenses
|
18,000
|
18,000
|
18,000
|
18,000
|
|
Depreciation expenses
|
1,000
|
1,000
|
1,000
|
1,000
|
All sales are made on credit terms. The historical and expected collection pattern is: 80 per cent is collected in the quarter of sale and 20 per cent in the following quarter. In order to obtain the best discount from suppliers, Farm-Tools will pay for the purchases on cash basis. The marketing and administration expenses are paid when incurred. Rental expenses are paid quarterly in advance under the five-year tenancy signed in January 2020.
Mr Mattar wishes to renovate the shop at an estimated cost of $85,000. The renovation work will require an advance payment of 40% on 1 October and the balance upon completion on 1 January 2021.
Sales revenue as at 30 June 2020 is $500,000.
The bank balance at 30 June 2020 is estimated as $100,000.
Required -
(a) Prepare a cash budget (on a quarterly basis) for Farm-Tools for the 12 months ending 30 June 2021.
(b) Explain whether there is sufficient fund for the intended renovation works.