Question 1: Metropolitan Furniture

Peter works in the accounts unit of the Metropolitan Furniture Manufacturing. He was asked to prepare a proposed budget for the forthcoming quarter. He consults with the sales manager and finds that:

Estimated sales are as follows:

February	$265,000	April	$290,000
March	$255,000	May	$250,000
		June	$280,000

In consultation with the production manager he estimates that the cost of goods sold is to be budgeted at 45% of the sales figure. The salaries are expected to be $65,000 per month. When sales exceed $260,000 in any one month, the sales team is entitled to an additional 5% commission on the excess sales over this figure. Other expenses are estimated to be $35,000 per month.

The owner of the organisation is concerned about the cash flow which was not thought of before. The owner is of the opinion that the collection of cash from sales is slow and this could possibly lead to cash flow problems to the organisation. As Peter has never forecasted cash flow before he sets about collecting information on this.

Peter estimates that 80% of the total sales are going to be cash sales where the bill is settled when the goods are purchased or delivered. 10% of the month’s sales settle the accounts owed in the month following sales. Others (i.e. 10% of the month’s sales) settle in the month after.

Additional information for Cash Flow Statement:

The organisation gets a month’s credit on its purchases. That is, the accounts for the purchases (COGS) made in one month is settled in the following month.

All salaries are paid in the month as they are incurred.
The additional commission is paid in the month after the month in which it was earned.
Other expenses are paid in the month they were incurred.
The bank balance at the beginning of the first month is estimated to be $40,000.

Show the profit and loss calculations for the April, May and June
Show the cash flow projection calculations for April, May and June
What Peter is required to advise the owner of the organisation?
Will the business adequate financial provision to pay tax? Why?
If the cash flow statement and the P & L are productive, then what are the relevant people Peter needs to communicate if he establishes a business plan?
If the P & L showing good profit trend and the forecasted cash flow statement returns positive results, then marketing and operational departments may tend to expand their budget and therefore the business may have cash shortage in future. How Peter can monitor financial performance on a continuous basis?
Does Peter require advising the owner about any immediate change in the financial plan? Why?

Answer (1):

Profit and Loss calculations
	April	May	June
	$	$	$
Sales
Less Cost of Goods Sold
Gross Profit
Sales Salaries
Commission
Other expenses
Total expenses
Net Profit

Answer (2):

Cash flow projections
	April	May	June
	$	$	$
Opening Cash
Plus cash in:
This month
From last month
From two months ago
Total Cash available
Less cash out:
Salaries
Commission
other expenses
Stock
Total cash out
Closing cash balance

Answer (3):

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Answer (4):

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Answer (5):

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Answer (5):

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Answer (6):

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Answer (7):

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Question 2: Preparation of Cash Flow Statement

Calculate the total cash inflows and cash outflows and the net cash position at the end of December from the following information:

Use the space provided and show all line items.

XYZ Pty Ltd.

December 2012

Particulars	Amount $
Cash receipts from customers	245,000
Cash paid to suppliers and employees	101,570
Interest paid	24,120
Income tax paid	25,910
Purchase of Subsidiary X, net of cash acquired	450000
Purchase of property, plant and equipment	350,100
Proceeds from sale of equipment	120,000
Interest received	22,550
Dividends received	25,654
Proceeds from issue of share capital	250,000
Proceeds from long-term borrowings	250,000
Payment of finance lease liabilities	50,000
Dividends paid	25,700
Cash and cash equivalents at beginning of period	530,750

Instruction for the students:

Regular inflow and outflow is recorded under operating activities
Cash inflow and outflow related to non-current assets are recorded under investment activities
Cash inflow and outflow related to interest bearing transactions are recorded under financing activities.
For each section add the inflows and then deduct the outflow.

Operating activities:	$	Net Cash flow $









Investment activities:










Financing activities:







Total Cash surplus/deficit
Cash and cash equivalent at the beginning of the year
Cash and cash equivalent at the end of the year

Question 3: GST and Cash Flow Statement

A company forecasts the following transactions during the next financial year which will affect its

cash flow. (All ATO dues and ATO credits are expected to be settled during the year.)

Cash sales, 10% GST not included

Credit sales for year, including 10% GST

Cash receipts in respect of credit sales — budget year

Cash receipts in respect of credit sales — previous year

Cash purchases, 10% GST not included

GST payable to ATO

GST input credit from ATO

Wages

Other payments, including 10% GST

90 000

186 000

150 000

11 000

80 000

10 000

20 000

110 000

44 000

Prepare a budgeted cash flow statement assuming that the opening bank balance was $30,200.

Workings:

Cash Receipts:	$	$
Cash sales
GST receipts on cash sales
Credit sales – budget year
Credit sales – previous year
Total Cash receipts
Cash Payments:
Purchases
GST payments on cash purchases
Wages
Net GST payable to ATO
Other payments
Total Cash Payments:
Cash surplus/(deficit)
Opening bank balance
Closing bank balance

Question 4: Cash Flow Statement

Suppose, a business estimated its 3rd quarter cash collection i.e. $500,000 and during that time its cash payment for purchase is going to be $340,000, other expenses 150,000. The business will also have to pay back its previous loan of $100,000. The business estimated its cash balance at the beginning of the quarter 50,000 and it desires to maintain a cash balance of 60, 000 at the end.

Required: Calculate how much finance it needs to maintain the closing cash balance. (i.e. how much cash it needs to borrow)

Cash Receipts:	$	$




Total Cash receipts
Cash Payments:





Total Cash Payments:
Cash surplus/(deficit)
Opening bank balance
Total Cash available before borrowing from lender
Money required to be borrowed to arrive at closing balance
Closing bank balance		60,000

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