Question 4

You work as a management accountant for a wholesaler Kay Bee Limited. To ensure that there is enough cash available to meet its financial obligations, you have been asked to help prepare the cash budget of the business from the details below: 

i) The bank account of Kay Bee Limited shows a balance of £1,750,000 on the 1st January 2019 

ii) Sales to customers are made on the following terms:

- 40% is paid in the month of sales.

- 20% is paid in the month following the sales. 

- The balance is paid two months after the sales.

iii) Sales of Kay Bee Limited for the year 2019 amounted to:

       January          February             March       April              May                June

         £000                 £000                £000           £000            £000                 £000

         3,300                3,500               4,500          10,500        7,000               9,000

iv) Kay Bee Limited is allowed two months credit by their suppliers. Below are the  purchases for the year 2019:

         January          February             March       April              May                June

         £000                 £000                £000            £000             £000                 £000    

        3,700                3,900               2,700           2,900            4,600                2,700

v) Kay Bee Limited plans to undertake repairs and renewal of its premises in the first quarter of the year. The cost of the repairs and renewal is £6,600,000 to be paid in three equal monthly installments starting from January 2019

vi) Kay Bee Limited spends £60,000 on light and heating every month. This is expected to increase by 50% in June 2019 in line with a planned increase by the energy supplier. 

vii) The insurance premium is £370,000 every month.

viii) Kay Bee Limited expects to receive £5,200,000 in April 2019 in settlement of an insurance claim relating to fire outbreak in one of their warehouses. 

Required:

Use the information that you have downloaded, prepare a cash budget for four months (March to June 2019) to answer questions 1 to 5.

1) How much cash was received in month of April 2019         

2) How much was the total payment made in June 2019

3) How much was the net cash in May 2019

4) How much was the closing cash in June 2019

5) How much insurance premium was paid in the four months to June 2019