# Cash Budget-Solution to Claras's Problem related to AAT Sample Assessment 1-Task 3c

ManiGoldwater
Registered Posts:

**11**
A company has supplied information regarding its forecast sales, labour costs and purchases:

Purchases: The company pays its suppliers on the basis of

25% one month after the date of purchase, 45% two months after the date of purchase and 30% three months after the date of purchase. At the end of period 3 the balance of trade payables is forecast to be:

Balance from period 1 =£18,200

Balance from period 2 =£60,000

Balance from period 3 =£105,500

What is settlement of month 3 trade payables for month 4 and month 5

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Solution:

The question is really asking to calculate payments that will be made in period 4&5.

To do this we need to find out the original purchase amount which is missing in the question.

So we will make a simple key of purchase payment as follows:

Purchase Payments Key:

one month after: 25%

two months after: 45%

three months after: 30%

So the payments schedule will follow the following pattern:

For purchases made in PR-1:

Payments will be 25% in period 2; 45% in period 3; 30% in period 4

For purchases made in PR-2:

Payments will be 25% in period 3; 45% in period 4; 30% in period 5

For purchases made in PR-3:

Payments will be 25% in period 4; 45% in period 5; 30% in period 6

The original purchase figure which is missing can now be calculated with the following formula:

Purchase = (100% / % of Bal left) × Bal left in £'s

Purchase in PR-1: (100% / 30% Bal left) × £18200 Bal left = £60666.67

Purchase in PR-2: (100% / 75% Bal left) × £60000 Bal left = £80000

Purchase in PR-3: (100% /100% Bal left) × £105500 Bal left = £105500

Now, look back at the purchase payment schedule done above.

So, we can see that in period 4 we will make the following payments:

From Purchase in PR-1 0.30 × 60666.67 = 18,200

From Purchase in PR-2 0.45 × 80000 = £36,000

From Purchase in PR-3 0.25 × 105500 = £26,375

Total Payments in Period 4 = 80,575

And, In period 5 we will make the following payments:

From Purchase in PR-2 0.30 × 80000 = £24000

From Purchase in PR-3 0.45 × 105500 = £47475

Total Payments in Period 5 = £71,475

Additionally, Period 3 T-Accounts will look like as under:

Please do correct me if I am wrong.

Thank you.

Purchases: The company pays its suppliers on the basis of

25% one month after the date of purchase, 45% two months after the date of purchase and 30% three months after the date of purchase. At the end of period 3 the balance of trade payables is forecast to be:

Balance from period 1 =£18,200

Balance from period 2 =£60,000

Balance from period 3 =£105,500

What is settlement of month 3 trade payables for month 4 and month 5

-----------------------------------------------------------------------------------------------------------------------------------------------

Solution:

The question is really asking to calculate payments that will be made in period 4&5.

To do this we need to find out the original purchase amount which is missing in the question.

So we will make a simple key of purchase payment as follows:

Purchase Payments Key:

one month after: 25%

two months after: 45%

three months after: 30%

So the payments schedule will follow the following pattern:

For purchases made in PR-1:

Payments will be 25% in period 2; 45% in period 3; 30% in period 4

For purchases made in PR-2:

Payments will be 25% in period 3; 45% in period 4; 30% in period 5

For purchases made in PR-3:

Payments will be 25% in period 4; 45% in period 5; 30% in period 6

The original purchase figure which is missing can now be calculated with the following formula:

Purchase = (100% / % of Bal left) × Bal left in £'s

Purchase in PR-1: (100% / 30% Bal left) × £18200 Bal left = £60666.67

Purchase in PR-2: (100% / 75% Bal left) × £60000 Bal left = £80000

Purchase in PR-3: (100% /100% Bal left) × £105500 Bal left = £105500

Now, look back at the purchase payment schedule done above.

So, we can see that in period 4 we will make the following payments:

From Purchase in PR-1 0.30 × 60666.67 = 18,200

From Purchase in PR-2 0.45 × 80000 = £36,000

From Purchase in PR-3 0.25 × 105500 = £26,375

Total Payments in Period 4 = 80,575

And, In period 5 we will make the following payments:

From Purchase in PR-2 0.30 × 80000 = £24000

From Purchase in PR-3 0.45 × 105500 = £47475

Total Payments in Period 5 = £71,475

Additionally, Period 3 T-Accounts will look like as under:

Please do correct me if I am wrong.

Thank you.

0

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