.ill Airtel 8:32 AM Done Maacho limited produce... [ Manuel recently leased spac

Question

.ill Airtel 8:32 AM Done Maacho limited produce... [ Manuel recently leased space in Accra Mall, and opened a new business, Man shop. Business has been good, but Manuel has frequently ran out of cash. This has necessitated late payment of certain orders, which in turn is beginning to cause a problem with suppliers. Manuel plans to borrow from the bank to have cash ready as needed, but first he needs a forecast of just how much he must borrow. Accordingly, he has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high. Sales are made on cash basis only. Manuel's purchases must be paid for during the following month. Manuel a salary of Ghc 4,800 per month, and the rent is GHC2,000 per month. In addition he must make tax payments of GHC12,000 in December. The current cash on hand(December1) is GHC400, but Manuel has agreed to maintain an average bank balance of GHC6,000-this is his target cash balance The estimated sales and purchases for December, January and February are shown below Purchases during November amounted to GHC140,000 pays himself Sales Purchases December 160,000 40,000 January February Prepare a cash budget for December, January and February ii. Now suppose Manuel were to start selling on credit basis on December 1,giving customers 30 days to pay. All customers accept these terms, and all other facts in the problem remain unchanged. What would the company's loan requirement be at the end of December? 40,000 60,000 40,000 40,000

Explanation / Answer

i) Cash budget Dec Jan Feb Beginning balance (A) 400 6000 6000 Add:Receipt from customers (B) 160000 40000 60000 Less:Payment to suppliers in the month following purchase 140000 40000 40000 Salary 4800 4800 4800 Rent 2000 2000 2000 Tax payment 12000 0 0 Total payment © 156800 44800 44800 Preliminary Ending balance (A)+(B)-© 3600 1200 21200 Average balance required 6000 6000 6000 Loan to be purchased 2400 4800 0 ii) 30 days credit means cash are collected in the next month of sales Cash budget Dec Jan Feb Beginning balance (A) 400 6000 121200 Add:Receipt from customers (B) 0 160000 40000 Less:Payment to suppliers in the month following purchase 140000 40000 40000 Salary 4800 4800 4800 Rent 2000 2000 2000 Tax payment 12000 0 0 Total payment © 156800 44800 44800 Preliminary Ending balance (A)+(B)-© -156400 121200 116400 Average balance required 6000 6000 6000 Loan to be purchased 162400 0 0 Loan requirements at the end of december=$162400

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