Cash Budgets practical problems and solutions

Problem 1

From the following information, prepare cash budget for the month of January to April:

Expected SalesExpected Purchase
$$
Jan.60,000Jan.48,000
Feb.40,000Feb.80,000
Mar.45,000Mar.81,000
Apr.40,000Apr.90,000

Wages to be paid to workers Rs. 5,000 each month. Balance at the bank on 1st Jan. $8,000. It has been decided by the Management that:
(i) In case of deficit fund within the limit of $10,000 arrangements can be made with bank.
(ii) In case of deficit fund exceeding Rs. 10,000 but within the limits of $42,000 issue of debentures is to be preferred.
(iii) In case of deficit fund exceeding $42,000, issue of shares is preferred (considering the fact that it is within the limit of authorized capital).


Solution

ParticularsJan.Feb.Mar.Apr.
Receipts:$$$$
Opening balance8,00015,000
Sales60,00040,00045,00040,000
Issue of debentures30,00041,000
Issue of shares55,000
Total68,00085,00086,00095,000
Less: Payments
Purchases48,00080,00081,00090,000
Wages5,0005,0005,0005,000
Closing Cash53,00085,00086,00095,000
15,000

Problem 2

Prepare Cash Budget of a Company for April, May and June 2019 in a columnar form using the following information:

MonthSalesPurchaseWageExp.
Jan. (Actual)80,00045,00020,0005,000
Feb. (Actual)80,00040,00018,0006,000
March (Actual)75,00042,00022,0006,000
April Budget90,00050,00024,0006,000
May Budget85,00045,00020,0006,000
June Budget80,00035,00018,0005,000
Also Check:  Q. 4. What are functional budgets? Which functional budgets are commonly used by the Management?

You are further informed that:
(a) 10% of purchase and 20% of Sale are for cash
(b) The average collection period of the Co. is 1/2 month and credit purchase is paid off regularly after one month
(c) Wages are paid half monthly and the rent of $500 excluded in expense is paid monthly
(d) Cash and Bank Balance on April 1, was $15,000 and the company wants to keep it on end of every month below this figure, the excess cash being put in fixed deposits.

Solution

Cash Budget – 2019:

April ($)May ($)June ($)
Cash & Bank Balance15,00011,70012,700
Add:
Cash Sale (20%)18,00017,00016,000
Cash collections From Drs.66,00070,00066,000
99,00098,70094,700
Less:
Cash Outflow
Cash flow (10%)5,0004,5003,500
Payment of Crs.37,80045,00040,500
Wages23,00022,00019,000
Rent500500500
Exp.6,0006,0006,000
Fixed Deposits15,0008,00013,000
Cash balance (closing)21,70012,70013,200
99,00098,70094,700

Problem 3

From the following information prepare a monthly cash budget for the three months ending 31st Dec.2019.

MonthSales
($)
Materials
($)
Wages
($)
Production
($)
Admin. Selling, etc
($)
June3,0001,800650225160
July3,2502,000750225160
Aug.3,5002,400750250175
Sep.3,7502,250750300175
Oct.4,0002,300800300200
Nov.4,2502,500900350200
Dec.4,5002,6001,000350225
Also Check:  Budget - Definition, Explanation, Classification with Examples

(i) Credit terms are:

(a) Sales — 3 months to debtors. 10% of sales are on cash. On an average, 50% of credit sales are paid on the due dates while the other 50% are paid in the month following

(b) Creditors for material — 2 months.

(ii) Lag in payment:

Wages. 1/4 month, overheads — 1/2 month.

(iii) Cash and Bank Balance on 1st Oct. expected $1,500.

(iv) Other information

(a) Plant and Machinery to be installed in Aug. at a cost of $24,000. It will be paid for by monthly installments of $5,00 each from 1st Oct.;

(b) Preference share dividend @ 5% on $50,000 are to be paid on 1st Dec.

(c) Calls on 250 equity shares @ $2 per share expected on 1st November;

(d) Dividends from investments amounting to $250 are expected on 31st Dec.;

(e) Income tax (advance) to be paid in December $ 500

Solution

Cash Budget
Period: 3 months ending 31 Dec. 2019
Details:Ocr. ($)Nov. ($)Dec. ($)
Balance b/d1,500.00537.50350.00
Receipts (Estimated):
Sales3,212.503,462.503,712.50
Capital500.00
Dividends250.00
Total (A)4,712.504,5004,312.50
Payments:
Creditors2,400.002,250.002,300.00
Wages787.50875.00975.00
Overheads:
Production300.00325.00350.00
Adm. S. & D.187.50200.00212.50
Pref. Dividend2,500.00
Income tax500.00
Plant and Machinery 500 each5,00.005,00.005,00.00
Total (B) Year4,175.004,150.007,337.50
Balance c/d (A – B)537.50350(-3,025)
Also Check:  Q. 1. Define Budget and Budgetary Control, What are its various objectives?

Calculation of amount of sales:

MonthSale ($)Oct. ($)Nov. ($)December ($)
June3,0001,350.00
July3,2501,462.501,462.50
Aug.3,5001,575.001,575.00
Sep.3,7501,687.50
Oct.4,000400.00
Nov.4,2504,250
Dec.4,500450.00
Total3,212.503,462.503,712.50

Wages Calculation

1/4 wages of September and 3/4 wages of Oct. Thus,

(1/4 x 750) = 187.50
3/4 x 800 = 600
Total = 787.50

The wages of other months will be calculated on the same pattern.

7 thoughts on “Cash Budgets practical problems and solutions”

  1. In problem 2, the closing balance should be 15000 for each month and same should be the opening balance for the following months. The excess of 15000 should be deposited to FD. So the deposit in april will be 11700, in may it should be 9000 and in June it should be 13500. Expenses in june should be 5000 not 6000 as there is no lag period mentioned for the same

    The first point under additional information should be edited, both percentage are mentioned for purchase one should be for sales.

    Apologies for being so critical, this page was over all very helpful in revisiting my concepts as i required. Thanks! Kudos!

  2. In problem 3

    (a) Plant and Machinery to be installed in Aug. at a cost of $24,000. It will be paid for by monthly installments of $5,000 each from 1st Oct

    In solution, it is taken at 500 per month.

  3. in question can anyone tell how opening balance an issue of debentures are calculated i’m so confused in these values?

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