Cash Budget ….

Feb 2020

Q 1 Calgon Products
Calgon Products needs a cash budget for the month of September 20x4. The following
information is available:
a The cash balance at the beginning of September is Rs. 9,000.
b Actual sales for July and August and expected sales for September are:
July August September
Rs. Rs. Rs.
Cash sales 6,500 5,250 7,400
Credit sales 20,000 30,000 40,000
Total sales 26,500 35,250 47,400
Sales on accounts are collected over a three month period in the following rate; 10%
collected in the month of sale, 70% collected in the month following sale, and 18%
collected in the second month following sales. The remaining 2% is uncollectible.
c Purchase for the month of September will be Rs. 25,000. 20% of purchases are paid
during the month of purchase and remaining are paid next month. The opening
balance of payable for the month of September is expected to be Rs. 16,000, all
of which will be paid during Sept.
d Operating expenses are Rs. 13,000 per month including depreciation Rs. 1,000.
There are no accrued or prepaid expenses.
e Equipment costing Rs. 18,000 will be purchased for cash during September, and
dividend Rs. 3,000 will be paid during the month.
f The company must maintain a minimum cash balance of Rs. 5,000. An open line of
credit is available from the company's bank to bolster the cash position as needed.
Required
1 Prepare a schedule of expected cash collection for the month of September 20x4.
2 Prepare a schedule of expected cash payments to suppliers during September 20x4.
3 Prepare a cash budget for the month of September.

Q2 `Celebrations' is the well-known shop in the local market, which supplies accessories
May related to the birthday and anniversary events. The owner has made the following sales
2017 forecasts for the first 5 months of the forthcoming financial year (July 01 to June 30):
Rupees
July 40,000
August 45,000
September 55,000
October 60,000
November 50,000
Additional Information:
• Following are the beginning balances for the forthcoming year:
Rupees
Debtors 30,000
Creditors 14,000
Cash balance 7,500
Stock 51,000
Accrued sales commission 3,500
• 40% sales are on cash basis and credit sales are collected in the following month.
1
 • Cost of sales is 60% of total sales.
• The only other variable cost is 5% commission to sales agents. Sales commission
is paid in the month after it is earned i.e. the time-lag is one month.
• Inventory (stock) is kept equal to sales requirements for the next 2 months' budgeted sales.
• Trade creditors are paid in the month following purchases.
• Fixed costs are Rs. 5,000 per month, including Rs. 2,000 depreciation.
Required:
Prepare a cash budget for each of the first 3 months i.e. July, August and September
of the forthcoming year. 11

Q3 A cash budget is now being prepared for the month of May 20x5. The following information
has been gathered to assist in preparing the budget;
a Budgeted sales Rs 650,000
Raw material to be used 304,000
Direct labour cost 85,000
The raw material inventory is budgeted to increase by Rs. 6,000 during the month.
b Customers are allowed a 2% cash discount on accounts paid within 10 days after the
end of the month of sale. Only 50% of the payment made in the month following sale
fall within the discount period.
c Accounts receivable outstanding at April 30 were:
Account % of sales
Sales Receivable Uncollected
Month Rs April 30 at April 30
January 340,000 8,500 2½
February 530,000 31,800 6
March 470,000 47,000 10
April 550,000 550,000 100

Bad debt are negligible. All January receivables outstanding will have been collected
by the end of May, and the collection pattern since the time of sale will be the same
in May as in previous month.
d Raw material purchases are paid in the month following purchase, and Rs. 320,000
in A/c Payable for purchases was outstanding at the end of April.
e Accrued wages on April 30 were Rs. 11,000. All May payroll amounts will be paid
within the month of May.
f Budgeted operating expenses and overhead costs for May are:
Factory Overhead: Rs.
Indirect labour 34,000
Real estate taxes 1,500
Depreciation 25,000
Utilities 1,500
Wage benefits 9,000
Fire insurance 1,500
Amortization of patents 5,000
Spoilage of materials in
the warehouse 1,500
Sales salaries 45,000
Administrative salaries 15,000
Freight out 1,000
2
 g Real estate taxes are paid in August each year.
h Utilities are billed and paid within the month.
i The Rs. 9,000 monthly charge above for "Wage benefits" includes:
Social Security Contribution (payable monthly) 1,350
Funded Pension Plan (payable monthly) 820
Annual Leave Pay ( 1/12 of the annual cost) 1,100
(May holiday will require Rs. 2,040)
Group insurance (payable quarterly, with the last 5,730
payment having been made in February.
j Fire insurance premium are payable in January, in advance.
k Freight out costs for May will be Rs. 1,000 all payable during the month.
l The cash balance on April 30, 19x5 was Rs. 5,750
Required:
1 Prepare a schedule showing expected cash collection for May 20x5. Marks: 8
2 Prepare a cash budget for May 20x5 in good form. Ignore income tax Marks: 12

Q4 Atlanta Food Processing Company (AFPC) is a famous food processing company in

ICMAP the south region of Pakistan. On September 01, 2017, AFPC acquired business of
Sept one of its raw material's suppliers for Rs. 1,200,000 and paid Rs. 420,000 premium
2017 for a lease of warehouse premises at annual rent of Rs. 120,000. The lease will be
expired on August 31, 2021. The finance for the purchase, premium, and the first
year's rent payment was transferred from AFPC's main business account to newly
acquired business account.
Additional Information:
• It is estimated that gross profit of 25% on gross sales (before discount) can be
achieved and maintained.
• Six months' sales (before discount) and purchases are budgeted as follows:
Sept Oct Nov Dec Jan Feb
Gross sales 1,440,000 1,920,000 2,160,000 2,400,000 2,880,000 3,600,000
Purchases 1,616,000 1,920,000 2,004,000 2,180,000 2,072,000 1,920,000

• Credit sales are expected to be 65% of total sales and the remainder would be for
cash. Credit terms are settled at the end of each month after sale. A 5% settlement
discount is offered for debts settled on those terms. Past experience shows that
20% of its credit customers will not take advantage of these terms and will settle
one month later.
• Purchases will be made from two suppliers in equal proportion. One supplier
requires payment in the month of delivery while the second one requires payment
in the month following delivery.
• Trade license and other local taxes totalling Rs. 115,200 will be payable on 28-2-18
for the next year. Trade license and other local taxes of Rs. 57,600 for the six
months i.e. up to February 28, 2018 were paid directly by the company from its
main business account.
• Monthly salaries and wages would be Rs. 36,000.
• An estimated electricity bill would be paid in the month of December 2017 for
Rs. 30,000 to cover the first 3 months' supplies.
• Expenses on printing, stationery and postage are expected to be Rs. 6,000 per month.

3
 It is anticipated that they will purchase secondhand delivery van for Rs. 288,000 in
then month of December 2017, which will be written off over 4 years. Depreciation is
to be provided for 3 months.
No interest/ markup will be charged by bank on overdraft due to main business A/c
maintained with the bank. Corporate taxes will be paid from main business account.
Required:
You are required to prepare monthly cash flow forecast for the six months' period
ending on February 28, 2018. 12

Q5 Smart Limited has prepared a forecast for the quarter ending December 31, 2009,
which is based on the following projections:
(i) Sales for the period October 2009 to January 2010 has been projected as under:
Rupees
October 2009 7,500,000
November 2009 9,900,000
December 2009 10,890,000
January 2010 10,000,000
Cash sale is 20% of the total sales. The company earns a gross profit at 20% of
sales. It intends to increase sales prices by 10% from November 1, 2009, however
since there would be no corresponding increase in purchase prices the gross profit
percentage is projected to increase. Effect of increase in sales price has been
incorporated in the above figures.
(ii) All debtors are allowed 45 days credit and are expected to settle promptly.
(iii) Smart Limited follows a policy of maintaining stocks equal to projected sale of the
next month.
(iv) All creditors are paid in the month following delivery. 10% of all purchases are cash
purchases.
(v) Marketing expenses for October are estimated at Rs. 300,000. 50% of these exp
are fixed whereas remaining amount varies in line with the value of sales. All
expenses are paid in the month in which they are incurred.
(vi) Administration expenses paid for September were Rs. 200,000. Due to inflation,
theses are expected to increase by 2% each month.
(vii) Depreciation is provided @ 15% per annum on straight line basis. Depreciation is
charged from date of purchase to the date of disposal.
(viii) On October 31, 2009 office equipment having book value of Rs. 500,000 (40% of
the cost) on October 1, 2009 would be replaced at a cost of Rs. 2,000,000. After
adjustment of trade-in allowance of Rs. 300,000 the balance would have to be paid
in cash.
(ix) The opening balances on October 1, 2009 are projected as under:
Rupees
Cash and bank 2,500,000
Trade debts – related to September 5,600,000
Trade debts – related to August 3,000,000
Fixed assets at cost (20% are fully depreciated) 8,000,000

Required: Marks: 16
(a) Prepare a month-wise cash budget for the quarter ending December 31, 2009.
(b) Prepare a budgeted profit and loss statement for the quarter ending Dec. 31, 09.

4
Q6 Nooruddin Ahmed is planning to start a new business. He will invest his saving
amounting to Rs. 3,500,000 and intends to make borrowing arrangements with a bank
to meet the working capital requirements. His planning is based on the following
estimates:
(i) He has identified a factory cum office premises at a monthly rent of Rs. 80,000
which will be payable in advance at the beginning of each month. However, he
needs to give three months rent as security deposit to the landlord before
occupying the space. Other fixed overheads excluding depreciation are estimated
at Rs. 120,000 per month which will be paid in the same month.
(ii) He has signed a contract for supply of machinery costing Rs. 1,800,000. The
payment will be made at the time of delivery in January 2008. This machinery
has an estimated life of five years with no residual value.
(iii) Production will start in January 2008 and 60% of the next month’s sales will be
manufactured in January 2008. Thereafter, the production will consist of 40% of
the current month’s sales and 60% of the next month’s sales.
(iv) He estimates the following sales for the first five months:
Month Unit Rupees
January - -
February 2,400 3,120,000
March 3,200 4,160,000
April 4,000 5,200,000
May 4,800 6,240,000

(v) Sales will be made on credit basis. A 5% cash discount will be allowed for
payments in the current month. It is estimated that 35%of each month’s sales
will qualify for this discount. Balance 65% will be recovered in the next month.
(vi) Variable production cost per unit has been estimated as:
Rupees
Direct material 600
Direct labour 200
Variable overhead 100
Total variable cost per unit 900
(vii) Raw materials costing Rs. 1,600,000 will be purchased in January 2008 in cash.
Thereafter, he intends to follow a policy of purchasing 50% of the monthly
requirement in the same month and 50% of the next month’s requirement. All
purchases after January shall be made on 30 days credit.
(viii) Salaries shall be paid in the first week of subsequent month.
(ix) 70% of the variable overheads shall be paid in the same month and 30% in the
next month.

Required:
Prepare a cash budget for the months January 2008 to April 2008 showing the balance
of cash / running finance at the end of each month. (20)

Q7 Zinc Limited (ZL) is engaged in trading business. Following data has been extracted from
ZL’s business plan for the year ended 30 September 2012:

5
 Sales Rs. ‘000
Actual:
Jan-12 85,000
Feb-12 95,000
Forecast:
Mar-12 55,000
Apr-12 60,000
May-12 65,000
Jun-12 75,000
Following information is also available:
(i) Cash sale is 20% of the total sales. ZL earns a gross profit of 25% of sales and uniformly
maintains stocks at 80% of the projected sale of the following month.
(ii) 60% of the debtors are collected in the first month subsequent to sale whereas the
remaining debtors are collected in the second month following sales.
(iii) 80% of the customers deduct income tax @ 3.5% at the time of payment.
(iv) In January 2012, ZL paid Rs. 2 million as 25% advance against purchase of packing
machinery. The machinery was delivered and installed in February 2012 and was to be
operated on test run for two months. 50% of the purchase price was agreed to be paid in
the month following installation and the remaining amount at the end of test run.
(v) Creditors are paid one month after purchases.
(vi) Administrative and selling expenses are estimated at 16% and 24% of the sales
respectively and are paid in the month in which they are incurred. ZL had cash and bank
balances of Rs. 100 million as at 29 February 2012.
Required:
Prepare a month-wise cash budget for the quarter ending 31 May 2012. (10 marks)

Q.8 The following budgeted sales values have been extracted from the budget of AZ Limited
for the year ending 31-12-2009.
Rs.
April 2009 400,000
May 450,000
June 520,000
July 420,000
August 480,000
The CM ratio is 40%, Fixed costs are budgeted to be Rs. 1.2 million for the year arising
at a constant rate per month and including depreciation of Rs. 300,000 per annum.
40% of each month's sales are produced in the month prior to sale, and 60% are
produced in the month of sale. 50% of the direct material required for production are
purchased in the month prior to their being used in production.
30% of the variable costs are labour costs, which are paid in the month they are incurred.
60% of the variable costs are direct material costs, Supplier of direct materials are paid
in the month after purchase.
40% of the remaining variable costs are paid in the month they are incurred, the balance
being paid in the month after they are incurred.
Fixed costs are paid in the month they are incurred.
Capital expenditure expected in June is Rs. 190,000.
Sales receipts for the three months of May, June and July are budgeted as follows:
May Rs. 401,700 June Rs. 450,280 July Rs. 425,880
6
 The bank balance on 1 May 2009 is expected to be Rs. 40,000.
Required: Marks: 15
Prepare a cash budget for AZ Limited in columnar format showing separately the
receipts, payments and balances for each of the months of May, June and July

Q.9 The management of Babar Company has been informed that the union representing
the direct production intends to cal a strike. The accountant has been asked to advise
the management of the effect of the strike will have on cash flow.
The following data has been available:

Week 1 Week 2 Week 3

Budgeted sales 400 units 500 units 400 units
Budgeted production 600 units 400 units Nil

The strike will commence at the beginning of week 3 and it should be assumed that it
will continue for at least four weeks. Sales at 400 units per week will continue to be
made during the period of stike until stocks of finished goods are exhausted. Production
will stop at the end of week 2. The current stock level of finished goods is 600 units.
Stock of work in progress are not carried.

The selling price of the product is Rs. 60 and the budgeted manufacturing cost is
made up as follows: Rs.
Direct material 15
Direct labour 7
Variable overhead 8
Fixed overhead 18

Direct wages are regarded as variable cost. The company operates a full absorption
costing system and the fixed overhead absorption rate is based upon a budgeted fixed
overhead of Rs. 9,000 per week. Included in the total fixed overhead is Rs. 700 per
week for depreciation of equipment. During the period of strike direct wages and variable
overheads would not be incurred and cash expended on fixed overheads would be
reduced by Rs. 1,500 per week.

The current stock of raw materials are worth Rs. 7,500. It is estimated that these stocks
should increase to Rs. 11,000 by the end of week 1 and then remain at this level during
the period of strike. All direct materials are paid for one week after they have been received.
Direct wages are paid one week in arrears. It should be assumed that all relevant overheds
are paid immediately the expnse is incurred. All sales are on credit. 70 %of the sales value
is received in cash from the debtors at the end of the first week after the sales have been
made and the balance at the end of the second week.

The current amount outstanding to material supplier is Rs. 8,000 and direct wages
accruals amounts to Rs. 3,200. Both of these will be paid in week 1. The current balance
owing from debtors is R. 31,200 of which Rs. 24,000 will be received during the week1
and the remaining during week 2. The current balance of cash is Rs. 1000.

Required: Prepare a cash budget for week 1 to week 6 showing the balance of cash
at the end of each week. (Marks : 20)

7
Q 10 Pioneer Ltd., is a merchandising company and sells a wide range of products. Since sales of
ICMA the company has grown rapidly over the few years, the company is planning to borrow money
May to meet the working capital requirement. Mr. Zohaib Khan, president of Pioneer Ltd., has just
2014 approached the company's bank with a request for Rs. 600,000 (180-days loan), as it will
assist the company in acquiring inventories. As the company had some difficulty in paying off
its loans in the past, the loan officer has asked for a cash budget to help in determining
whether the loan should be granted or not. For preparing cash budget following data is
available for six months (from January to June), during which the loan will be used:

(a) On January 1, the start of the loan period, cash balance will be Rs.156,000 and accounts
receivable Rs.909,000 of which Rs.846,000 will be collected during January and
Rs.43,200 will be collected during February. The remainder will be uncollected.

(b) Past experience shows that 30% of a month's sales are collected in the month of sale,
60% in the month following sale, and 8% in the second month following sale. The other
2% represents bad debts that are never collected. Budgeted sales and expenses for the
six months are as follows:
Rupees
Jan Feb March April Mau June
Sales 1,200,000 1,800,000 2,100,000 3,150,000 3,675,000 5,512,500
Purchases 720,000 1,080,000 1,260,000 1,890,000 2,205,000 3,307,500
Payroll 54,000 81,000 94,500 141,750 165,375 248,063
Lease payments 90,000 90,000 90,000 90,000 90,000 90,000
Advertising 420,000 480,000 540,000 617,143 694,286 793,469
Equip purchases 48,000
Depreciation 60,000 60,000 60,000 60,000 60,000 60,000

(c) Merchandise purchases are paid in full during the month following purchases. Accounts
payable Rs. 1200,000 for merchandise purchased on December 31, which will be paid
during January.
(d) In preparing the cash budget, assume that Rs.600, 000 loan will be granted in January
and repaid in June. Interest on the loan will total Rs.96,000.

Required:
Prepare a cash budget showing month-wise and total budgeted figures
from January to June. 12

Q 11 Salman is considering to set up a business offering mobile service of shoe repairing in

ICMAP the commercial area using the car parks of the shopping centres and offers an as-youwait
Feb-13 shoe repair service from his van. He has visited the major employers in the area
and having reached agreements with a number of large local businesses and having
carried out surveys of his potential customers, he has arrived at the following estimates
for his first 3 months of business:
a) He will start the business by investing Rs. 120,000 of his own money in March 2013
and, in that month, he will purchase a second-hand van at a cost of Rs. 90,000 and
various machinery for Rs. 30,000. Also in March, he will buy inventories of materials
at a cost of Rs. 38,500. The van would then be painted to advertise his business, at
8
 a cost of Rs. 7,000, payable in April 2013.
b) He will commence business in April 2013 and expects sales to be as follows:
Rupees
Apr-13 13,000
May-13 15,000
Jun-13 18,000
Materials needed for the repairs would cost 30% of the sales price of each repair,
giving a margin of 70% and materials would be regularly replaced to maintain
inventories at a constant level.
c) Fuel expense will be Rs. 800 per month from April 2013 onwards and motor
insurance for the year to 31 March 2014 will be Rs. 7,500, payable in April 2013.
d) All sales will be for cash and all purchases, including the purchase of opening
inventories, will be on one month’s credit.
e) Salman will draw Rs. 5,000 per month for his personal expenditures from April 2013.

f) Running bank financing will be available if required, at 10%. Cash requirement at the
end of month will be Rs. 5,000 and extra cash will be used to pay off financing.
Assume financing will be taken at the start of month and interest will be paid in July 13
Required:
(i) What is the purpose of preparing a cash budget? Give four reasons. 02
(ii) Prepare a cash budget for Salman for four months ended June 30, 2013. 06
(iii) Furnish details of outstanding payments, if any. 02

Q 12 Info Tech Ltd., is a medium-sized company and finance all its operational needs through short
ICMAP term finance. Excess short term financing has increased the liquidity risk and cash flow
Aug-15 problems for the company. Mr. Khan, the Director Finance has extracted the data related to the
financial position of the company at the current date for review.

The extract of statement of financial position at the current date are as follows:
Statement of Financial Position (Extract)
As at the current date
Rs. `000'
Non-current assets 50,650
Current assets
Inventory 9,240
Accounts receivable 10,500
Total assets 70,390

Current liabilities
Overdraft 8,000
Accounts payable 12,000
20,000

After evaluating the financial position of the company, Mr. Khan conducted a review of inventory
management, accounts payable, accounts receivable and proposed the following:
• Mr. Khan suggested that a company will negotiate with one of its old supplier to allow
relaxation in credit terms. Due to good supplier-customer relationship it is expected that the
company will get relaxation in credit terms and days for payment of accounts payable will be

9
 extended by 7 days per month without any penalty.
• He also proposed that inventory including safety stock may be ordered when required, which
can reduce inventory days by 3 days per month each month over a three-month period from
the current date.
• Mr. Khan does not expect any change in accounts receivable.
Expected cash flow forecast for the three months i.e., January, February and March, from the
current date would be as follows:
• Total estimated cash operating receipts will be Rs. 15,500,000 within three months, out of
which 40% will be received in the month of January, 30% in the month of February and
remaining amount will be received in the month of March.
• Total operating expenses payable is expected to be Rs.12,200,000 out of which 35% will be
paid in the month of January, 25% in the month of February and remaining amount will be
paid in the month of March.
• Six-monthly interest of Rs.300,000 will be paid in the month of February on traded bonds.
• The company will also make a capital investment of Rs.3,000,000 in the month of March.

Additional information:
Info Tech Ltd., has an overdraft limit of Rs.8,000,000. Monthly overdraft interest rate
is 0.8% per month with payments being made each month based on the opening balance
at the start of that month.
Data related for the year to current date are as follows:
Rupees
Credit purchases 35,420,000
Credit sales 56,128,900
Cost of sales 24,280,000

The above levels of credit sales, credit purchases and cost of sales are expected to be
maintained in the coming year, assuming 250 working days in each year.
Required:
Calculate the bank balance of Info Tech in January, February and March, if the Director
Finance proposals are implemented.

Q 13 Crescent Merchandising Company is in the process of assembling a cash budget.

ICMAP The following budgeted information for August, September, and October 2015 has
Feb-16 been extracted from the company's accounting records:
August September October
Sales 490,000 550,000 645,000
Manufacturing costs 240,000 245,000 260,000
Admin and selling expenses 158,000 165,000 175,000
Capital expenditure - - 95,000
Other information is as follows:
The company expects to sell about 10% of its sales for cash. Past experience
indicates that 60% of sales on account are expected to be collected in full in the month
of sale, and the remainder in the following month. It is estimated that 80% of the
manufacturing costs are expected to be paid in the month in which they are incurred
and the balance in the following month.
Assets as of August 01, 2015 include cash of Rs. 55,000 and accounts receivable
of Rs. 151,200 from July sales.
Current liabilities as of August 01, 2015 include Rs. 45,000 three months note payable,
bearing annual interest rate of 12% due on October 20, 2015 and Rs. 60,000 of
accounts payable incurred in July for manufacturing costs.
10
 All selling and administrative expenses are paid in cash in the month in which they are incurred.
It is expected that dividend of Rs. 1,500 will be received in August.
An estimated income tax payment of Rs. 42,000 will be made in September.
Crescent's regular quarterly dividend of Rs. 15,000 is expected to be declared in
September and paid in October.
Management desires to maintain a minimum cash balance of Rs. 154,200.
Borrowings are made at the end of the month on which bank charges 12% interest per annum.
Repayments are also made at the end of the month as excess cash permits.
Required:
The Controller of Crescent Merchandising Company asked you to prepare a
cash budget for the month of August, September and October15 2015.

Q 14 During the year ending June 30, 20X1 Abdul Habib Company Limited has planned to launch
a new product which is expected to generate a profit of Rs. 9.3 million as shown below:
Rs. in ‘000’
Sales revenue (24,000 units) 51,600
Less: cost of goods sold 37,500
Gross profit 14,100
Less: operating expenses 4,800
Net profit before tax 9,300

The following additional information is available:

(i) 75% of the units would be sold on 30 days credit. Credit prices would be 10% higher
than the cash price. It is estimated that 70% of the customers will settle their
account within the credit term while rest of the customers would pay within 60 days.
Bad debts have been estimated @ 2% of credit sales. All cash and credit receipts
are subject to 6% withholding tax
(ii) 80% of the expenses forming part of cost of goods sold are variable. These are to be
paid one month in arrears.
(iii) The production will require additional machinery which will be purchased on July 1,
20X0 at a cost of Rs. 60 million. The machine is expected to have a useful life of
15 years and salvage value of Rs. 7.5 million. The company has a policy to charge
depreciation on straight line basis. The depreciation on the machinery is included
in the cost of goods sold as shown above.
(iv) Variable operating expenses excluding bad debts are Rs. 105 per unit. These are
to be paid in the same month in which the sale is made.
(v) 50% of the fixed costs would be paid immediately when incurred while the remaining
50% would be paid 15 days in arrears.
(vi) The management has decided to maintain finished goods stock of 1,000 units.
Required:
Calculate the cash requirements for the first two quarters. (17)

11