Draw up the cash budget for the three months ending 30 June 2013.

To prepare the cash budget for the three months ending 30 June 2013, we need to calculate the cash inflows (receipts) and cash outflows (payments) for April, May, and June.

1. Calculation of Cash Inflows (Receipts from Sales):

• Sales Collection Pattern:

  • 60% in the month of sale.
  • The remaining 40% is split into two equal instalments (20% each) over the following two months.
  • 2% of the final instalment (the 20% due in month 3) is irrecoverable. So, the actual collection in month 3 is $20\% \times (1 - 0.02) = 19.6\%$.

• Opening Trade Receivables: $70,000 at 31 March 2013. This balance is collected in two equal instalments over April and May. The final instalment (May) is subject to the 2% irrecoverable portion.

  • April collection from opening receivables: \frac{\70,000}{2} = $35,000$
  • May collection from opening receivables: \frac{\70,000}{2} \times (1 - 0.02) = $35,000 \times 0.98 = $34,300$

• Budgeted Sales:

  • April: $140,000
  • May: $150,000
  • June: $130,000
  • July: $200,000

• Receipts Calculation:

  • April:
    • From April sales ($140,000 \times 0.60$) = $84,000
    • From opening trade receivables = $35,000
    • Total April Receipts = $84,000 +$35,000 = $119,000
  • May:
    • From May sales ($150,000 \times 0.60$) = $90,000
    • From April sales ($140,000 \times 0.20$) = $28,000
    • From opening trade receivables = $34,300
    • Total May Receipts = $90,000 +$28,000 + $34,300 =$152,300
  • June:
    • From June sales ($130,000 \times 0.60$) = $78,000
    • From May sales ($150,000 \times 0.20$) = $30,000
    • From April sales ($140,000 \times 0.196$) = $27,440
    • Total June Receipts = $78,000 +$30,000 + $27,440 =$135,440

2. Calculation of Cash Outflows (Payments):

• Cost of Sales (Purchases): The company applies a mark-up of 25% on cost. So, Cost = Sales / 1.25.

  • April Purchases: $140,000 / 1.25 =$112,000
  • May Purchases: $150,000 / 1.25 =$120,000
  • June Purchases: $130,000 / 1.25 =$104,000
  • July Purchases: $200,000 / 1.25 =$160,000

• Payment to Trade Suppliers:

  • 40% in the month of purchase.
  • The balance (60%) is paid in equal instalments over the following three months (20% in month 2, 20% in month 3, 20% in month 4).

• Opening Trade Payables: $60,000 at 31 March 2013. This balance is paid in equal instalments over the following three months (April, May, June).

  • Payment of opening trade payables per month = \frac{\60,000}{3} = $20,000$

• Payments for Purchases Calculation:

  • April:
    • From April purchases ($112,000 \times 0.40$) = $44,800
    • Payment of opening trade payables = $20,000
    • Total April Payments for Purchases = $44,800 +$20,000 = $64,800
  • May:
    • From May purchases ($120,000 \times 0.40$) = $48,000
    • From April purchases ($112,000 \times 0.20$) = $22,400
    • Payment of opening trade payables = $20,000
    • Total May Payments for Purchases = $48,000 +$22,400 + $20,000 =$90,400
  • June:
    • From June purchases ($104,000 \times 0.40$) = $41,600
    • From May purchases ($120,000 \times 0.20$) = $24,000
    • From April purchases ($112,000 \times 0.20$) = $22,400
    • Payment of opening trade payables = $20,000
    • Total June Payments for Purchases = $41,600 +$24,000 + $22,400 +$20,000 = $108,000

• Operating Expenses: $6,000 per month, payable in the month they arise.

  • April: $6,000
  • May: $6,000
  • June: $6,000

• Equipment Purchase: Equipment costing $5,000 purchased on 1 June. 30% payable on purchase.

  • June: $5,000 \times 0.30 =$1,500
  • The balance is paid over the following four months, which falls outside this budget period. Depreciation is a non-cash expense and is ignored for the cash budget.

3. Initial Cash Balance:

• Bank balance at 31 March 2013 = $28,600

Cash Budget for the three months ending 30 June 2013

$$\begin{array}{|l|r|r|r|} \hline \textbf{Item} & \textbf{April (\$)} & \textbf{May (\$)} & \textbf{June (\$)} \\ \hline \textbf{Opening Cash Balance} & 28,600 & 76,800 & 132,700 \\ \textbf{Cash Inflows:} & & & \\ \quad \text{Receipts from Sales:} & & & \\ \quad \quad \text{Current month (60\%)} & 84,000 & 90,000 & 78,000 \\ \quad \quad \text{Previous month (20\%)} & - & 28,000 & 30,000 \\ \quad \quad \text{Two months prior (19.6\%)} & - & - & 27,440 \\ \quad \quad \text{From opening trade receivables} & 35,000 & 34,300 & - \\ \textbf{Total Cash Inflows} & \textbf{119,000} & \textbf{152,300} & \textbf{135,440} \\ \textbf{Total Cash Available} & 147,600 & 229,100 & 268,140 \\ \textbf{Cash Outflows:} & & & \\ \quad \text{Payments for Purchases:} & & & \\ \quad \quad \text{Current month (40\%)} & 44,800 & 48,000 & 41,600 \\ \quad \quad \text{Previous month (20\%)} & - & 22,400 & 24,000 \\ \quad \quad \text{Two months prior (20\%)} & - & - & 22,400 \\ \quad \quad \text{Payment of opening trade payables} & 20,000 & 20,000 & 20,000 \\ \quad \text{Operating Expenses} & 6,000 & 6,000 & 6,000 \\ \quad \text{Equipment Purchase} & - & - & 1,500 \\ \textbf{Total Cash Outflows} & \textbf{70,800} & \textbf{96,400} & \textbf{115,500} \\ \textbf{Closing Cash Balance} & \textbf{76,800} & \textbf{132,700} & \textbf{152,640} \\ \hline \end{array}$$

The final cash balances for each month are:

• April: \boxed{\text{\76,800}}$
• May: \boxed{\text{\132,700}}$
• June: \boxed{\text{\152,640}}$