Prepare a cash budget for January, February, and March. List and explain five (5) importance of a cash-budget. You are required: to Calculate Donald Corporation Current ratio, Quick ratio, and Cash ratio

Here's the solution to the questions from the image: Question 1a: Prepare a cash budget for January, February, and March. Step 1: Calculate Cash Receipts from Debtors. The debtor settlement pattern is 60% in the month of sale, 25% the month following, and 15% the second month following. January Collections: From November sales (15\% of N 80,000): 0.15 × 80,000 = N 12,000 From December sales (25\% of N 90,000): 0.25 × 90,000 = N 22,500 From January sales (60\% of N 75,000): 0.60 × 75,000 = N 45,000 Total January Collections: N 12,000 + N 22,500 + N 45,000 = N 79,500 February Collections: From December sales (15\% of N 90,000): 0.15 × 90,000 = N 13,500 From January sales (25\% of N 75,000): 0.25 × 75,000 = N 18,750 From February sales (60\% of N 75,000): 0.60 × 75,000 = N 45,000 Total February Collections: N 13,500 + N 18,750 + N 45,000 = N 77,250 March Collections: From January sales (15\% of N 75,000): 0.15 × 75,000 = N 11,250 From February sales (25\% of N 75,000): 0.25 × 75,000 = N 18,750 From March sales (60\% of N 80,000): 0.60 × 80,000 = N 48,000 Total March Collections: N 11,250 + N 18,750 + N 48,000 = N 78,000 Step 2: Calculate Cash Payments for Purchases. The purchase settlement pattern is 90% in the month of purchase and 10% the month after. January Payments for Purchases: From December purchases (10\% of N 60,000): 0.10 × 60,000 = N 6,000 From January purchases (90\% of N 55,000): 0.90 × 55,000 = N 49,500 Total January Payments: N 6,000 + N 49,500 = N 55,500 February Payments for Purchases: From January purchases (10\% of N 55,000): 0.10 × 55,000 = N 5,500 From February purchases (90\% of N 45,000): 0.90 × 45,000 = N 40,500 Total February Payments: N 5,500 + N 40,500 = N 46,000 March Payments for Purchases: From February purchases (10\% of N 45,000): 0.10 × 45,000 = N 4,500 From March purchases (90\% of N 55,000): 0.90 × 55,000 = N 49,500 Total March Payments: N 4,500 + N 49,500 = N 54,000 Step 3: Prepare the Cash Budget. Note: Overheads are N 20,000 per month, including N 5,000 depreciation. Cash overheads are N 15,000 (20,000 - 5,000). |l|r|r|r| Item & January (N) & February (N) & March (N) \\ Opening Cash Balance & 30,000 & 24,000 & 17,250 \\ Cash Receipts: & & & \\ Collections from Debtors & 79,500 & 77,250 & 78,000 \\ Insurance Claim & - & - & 25,000 \\ Total Cash Receipts & 79,500 & 77,250 & 103,000 \\ Total Cash Available & 109,500 & 101,250 & 120,250 \\ Cash Payments: & & & \\ Payments for Purchases & 55,500 & 46,000 & 54,000 \\ Wages & 15,000 & 15,000 & 15,000 \\ Overheads (excluding depreciation) & 15,000 & 15,000 & 15,000 \\ Taxation & - & 8,000 & - \\ Total Cash Payments & 85,500 & 84,000 & 84,000 \\ Closing Cash Balance & 24,000 & 17,250 & 36,250 \\ Question 1b: List and explain five (5) importance of a cash budget. • Liquidity Management: A cash budget helps in forecasting cash surpluses or deficits, allowing management to plan for short-term borrowing to cover deficits or invest excess cash. • Financial Planning: It provides a clear picture of future cash flows, which is crucial for overall financial planning and making informed decisions about capital expenditures or dividend policies. • Performance Evaluation: The budget serves as a benchmark against which actual cash flows can be compared, enabling management to identify variances and take corrective actions. • Coordination: It integrates various functional budgets (e.g., sales, production, purchases) into a single financial plan, ensuring better coordination and alignment across different departments. • Control over Cash: A cash budget helps in monitoring and controlling cash inflows and outflows, preventing unnecessary expenditures and ensuring the efficient utilization of cash resources. Question 2a: Calculate Donald Corporation Current ratio, Quick ratio, and Cash ratio. Given Information: Cash and marketable securities = N 400,000 Accounts receivable = N 1,200,000 Inventory = N 2,100,000 Accrued wages and taxes = N 500,000 Accounts payable = N 800,000 Notes payable = N 600,000 Step 1: Calculate Total Current Assets and Total Current Liabilities. Current Assets = Cash and marketable securities + Accounts receivable + Inventory Current Assets = N 400,000 + N 1,200,000 + N 2,100,000 = N 3,700,000 Current Liabilities = Accrued wages and taxes + Accounts payable + Notes payable Current Liabilities = N 500,000 + N 800,000 + N 600,000 = N 1,900,000 Step 2: Calculate the Current Ratio. Current Ratio = Current AssetsCurrent Liabilities Current Ratio = N 3,700,000N 1,900,000 Current Ratio ≈ 1.95:1 Step 3: Calculate the Quick Ratio (Acid-Test Ratio). Quick Ratio = Cash + Marketable Securities + Accounts ReceivableCurrent Liabilities Quick Ratio = N 400,000 + N 1,200,000N 1,900,000 Quick Ratio = N 1,600,000N 1,900,000 Quick Ratio ≈ 0.84:1 Step 4: Calculate the Cash Ratio. Cash Ratio = Cash + Marketable SecuritiesCurrent Liabilities Cash Ratio = N 400,000N 1,900,000 Cash Ratio ≈ 0.21:1 That's 3 down. 2 left today — send the next one.