# AAT Cash Management Solution to Sample Assessent 1 Task 3 c

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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, 40% two months after the date of purchase and 35% 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 =£30,135
Balance from period 2 =£66,900
Balance from period 3 =£92,400
Total payables at the end of period 3 =£189,435
Identify the value of trade payables at the end of period three that will be paid in period 4 and 5.
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Solution: The question is actually 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: 40%
three months after: 35%

So the payments schedule will follow the following pattern:
For purchases made in PR-1: Payments will be 25% in period 2; 40% in period 3; 35% in period 4
For purchases made in PR-2: Payments will be 25% in period 3; 40% in period 4; 35% in period 5
For purchases made in PR-3: Payments will be 25% in period 4; 40% in period 5; 35% in period 6

These calculation can also be done in Excel as shown below [you may ignore period 4 and 5 payment schedules to be done in subsequent periods as we are not dealing with purchase transactions done during these periods]:

The original purchase figure which is missing can now be calculated with the following formula:
Purchase = (100% / % of Bal left) × Bal left in £'s
So,
Purchase in PR-1: (100% / 35% Bal left) × £30135 Bal left = £86100
Purchase in PR-2: (100% / 75% Bal left) × £66900 Bal left = £89200
Purchase in PR-3: (100% / 100% Bal left) × £92400 Bal left = £92400

See Excel Calculations below as well:

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 0.35 × 86100 = £30,135
From Purchase in PR-2 0.40 × 89200 = £35,680
From Purchase in PR-3 0.25 × 92400 = £23,100
Total Payments in Period 4 = £88,915

And, In period 5 we will make the following payments:
From Purchase in PR-2 0.35 × 89200 = £31,220
From Purchase in PR-3 0.40 × 92400 = £36,960
Total Payments in Period 5 = £68,180

These calculation can also be done in Excel as shown below:

Also, Period 3 T-Accounts for Purchase Ledger will appear as shown under:

Please do correct me if I am wrong.
Thank you.
M.Goldwater