Question

The following figures are available for Insure (Pty) Ltd:

	Actual (2018)			Budget (2018)
	January	February	March	April	May
Sales	96 000	120 000	60 000	160 000	200 000
Purchases	100 000	50 000	160 000	84 000	60 000
Sales commission	400	600	1 200	800	400
Wages	800	800	800	?	?

1. 40% of all sales are for cash.
2. 35% of all purchases are for cash.
3. Collection from debtors are as follows:
   20% is collected in the month of the sale and 2% discount is granted on these collections.
   60% is collected in the month following the month of sale.
   15% is collected in the second month following the month of sale.
   The remaining 5% is written off as a bad debt.
4. Insure (Pty) Ltd will make an investment of R50 000 in fixed deposit on 01 April 2018.
5. Interest of R500 per month on the fixed deposit is expected to be received from 30 April 2018.
   1. Creditors are paid 2 months after date of invoice.
   2. Rent expense amounts to R8 000 per month and is payable on the first day of each month.
   3. Wages will be increased by 10% in April and will increase by a further 5% in May 2018.
   4. A new machine is expected to be purchased for R10 000 cash in May 2018.
   5. Commission is paid to sales personnel in the month following the month in which it was earned.
   6. On 31 March 2018, Insure (Pty) Ltd had a bank overdraft of R28 000.
      
      Required:

Prepare the debtors‘ collection schedule for April and May 2018. (10)

Prepare the cash budget for April and May 2018.   (20)

Answer 1

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Insure Pty Ltd.
Credit Sales	January	February	March	April	May
Sales	96,000.00	120,000.00	60,000.00	160,000.00	200,000.00	A
Cash Sales @ 40%	38,400.00	48,000.00	24,000.00	64,000.00	80,000.00	B=A*40%
Credit Sales	57,600.00	72,000.00	36,000.00	96,000.00	120,000.00	C=A-B
Collection from Debtors	January	February	March	April	May
20% in the month of the sale	11,520.00	14,400.00	7,200.00	19,200.00	24,000.00	D=C*20%
Less: 2% discount	230.40	288.00	144.00	384.00	480.00	E=D*2%
Net collected in the month of the sale	11,289.60	14,112.00	7,056.00	18,816.00	23,520.00	F=D-E
60% in month following the month of sale		34,560.00	43,200.00	21,600.00	57,600.00	G=60% of C of previous month
15% in second month following sale			8,640.00	10,800.00	5,400.00	H=60% of C of previous to previous month
Collection from Debtors				51,216.00	86,520.00	I=F+G+H
Credit Purchases	January	February	March	April	May
Purchases	100,000.00	50,000.00	160,000.00	84,000.00	60,000.00	J
Cash Purchases @ 35%	35,000.00	17,500.00	56,000.00	29,400.00	21,000.00	K=J*35%
Credit Purchases	65,000.00	32,500.00	104,000.00	54,600.00	39,000.00	L=J-K
Payment to Creditors	January	February	March	April	May
Credit Purchases	65,000.00	32,500.00	104,000.00	54,600.00	39,000.00	L
Creditors are paid 2 months after date of invoice			65,000.00	32,500.00	104,000.00	M= L of previous to previous month
Payment to Creditors			65,000.00	32,500.00	104,000.00	M
Payment of Wages	January	February	March	April	May
Wages paid	800.00	800.00	800.00	880.00	924.00	N
10% increase in April i.e. 800+10%of 800= R 880.
5% increase in May i.e. 880+5%of 880= R 924.
Cash budget				April	May
Beginning Balance				(28,000.00)	(33,864.00)
Add:
Cash Sales				64,000.00	80,000.00	B
Collection from Debtors				51,216.00	86,520.00	I
Interest Income from Fixed Deposit				500.00	500.00
Cash Available				87,716.00	133,156.00
Disbursements
Fixed deposit				50,000.00	-
Cash Purchases				29,400.00	21,000.00	K
Payment to Creditors				32,500.00	104,000.00	M
Rent payment				8,000.00	8,000.00
Payment of Wages				880.00	924.00	N
Sales commission				800.00	400.00
Machinery purchased				-	10,000.00
Total cash payments				121,580.00	144,324.00
Ending balance (Overdraft)				(33,864.00)	(11,168.00)