BMF – May 2017 – L1 – SB – Q5 – Basics of Business Finance and Financial Markets

Preparation of a cash budget for XYZ Automobiles Nigeria Limited for the three months ending March 31, 2017.

Question

The following projections relate to XYZ Automobiles Nigeria Limited.

Month	Sales (N)	Purchases (N)	Wages (N)	Overheads (N)
November 2016	400,000	204,000	76,000	38,000
December 2016	420,000	200,000	76,000	42,000
January 2017	460,000	196,000	80,000	46,000
February 2017	500,000	200,000	84,000	48,000
March 2017	600,000	216,000	90,000	50,000

Additional information:

Cash balance on January 1, 2017, is expected to be N80,000.
A plant will be installed in November 2016 at a cost of N1,000,000 and the monthly installment of N50,000 is payable from January 2017.
A sum of N30,000 will be paid as dividends in the month of March 2017.
Company income tax of N45,000 will be due for payment in March 2017.
Advance payment of N800,000 in respect of a sale of a truck will be received in March 2017.
In line with the company’s policy, 50% of sales are on a cash basis. 50% of credit sales are collected in the month immediately following the month of sales while the balance is paid a month after the payment of the first installment.
All purchases are on credit and the creditors are paid fully two months after the month of purchase.
Wages and overheads are paid as and when due.

Required:

Prepare a cash budget for each of the THREE months ending March 31, 2017.

Answer

XYZ Automobiles Nigeria Ltd
Cash Budget for three months ending 31st
March, 2017

NB: The total column is not a requirement of the question, but has been inserted for
tutorials.

Cash Collection from Sales:

Collections (N ‘000)	January	February	March
November	100	–	–
December	105	105	–
January	230	115	115
February	–	250	125
March	–	–	300
Total	435	470	540