Cash Budget: • Question 4 (i) (15 Marks)As the Chief Financial Officer (CFO) for XYZ Limited you are required to prepare a cash budget for the period 01 October to 31 December 2023. The following are the cash sales. Cash sales Month October 2023 November 2023 December 2023 US$ US$ US$Cash sales 224,000 256,000 288,000 In terms of debtors, 90% of total debtors from the previous month will be collected as accounts receivable / debtors’ receipts of the month following and the remaining balance is written off in the income statement and not accounted for in the cash budget: Debtors Aged AnalysisMonth September 2023 October 2023 November 2023 December 2023 US$ US$ US$ US$Total debtors Balance 300,933.33 361,066.67 411,200.00 526,500.26 Expenses: Cash for purchases, October 2023, $180,000.00, November 2023, $230,000.00 and December 2023, $245,000.00. Payments to Creditors, October 2023, $180,000.00, November 2023, $130,000.00 and December 2023, $145,000.00.Wages and salaries, October 2023, $105,000.00, November 2023, $130,000.00 and December 2023, $145,000.00.Selling and distribution expense October 2023, $10,000.00, November 2023, $15,000.00 and December 2023, $25,000.00. Company tax expense October 2023, $11,000.00, November 2023, $16,000.00 and December 2023, $24,000.00. Administrative expenses are calculated as 45% of the cash purchases for each month based on (a) above. Property tax to be expensed is calculated as 15% of the cash purchases for each month based on (a) above. The opening balance on 1st of October 2023 is $32,000. • Question 4 (ii) (5 Marks) Establish whether there is a cash surplus or a budget deficit in question 4 (i) above. If there is a cash surplus advise the entity on different strategies for investing the excess cash and if there is a cash budget deficit advise the company on different methods of raising sources of funds / finance to cushion on the negative cash and cash equivalent.

To prepare the cash budget for XYZ Limited for the period of October 2023 to December 2023, we need to follow the given information step by step.

Step 1: Calculate the cash sales for each month:

• October 2023: $224,000
• November 2023: $256,000
• December 2023: $288,000

Step 2: Calculate the accounts receivable / debtors' receipts for each month:

• October 2023: 90% of September 2023 debtors balance ($361,066.67) =$324,960
• November 2023: 90% of October 2023 debtors balance ($411,200.00) =$370,080
• December 2023: 90% of November 2023 debtors balance ($526,500.26) =$473,850.23

Step 3: Calculate the remaining balance of debtors written off:

• October 2023: 10% of September 2023 debtors balance ($361,066.67) =$36,106.67
• November 2023: 10% of October 2023 debtors balance ($411,200.00) =$41,120.00
• December 2023: 10% of November 2023 debtors balance ($526,500.26) =$52,650.03

Step 4: Calculate the total cash receipts for each month:

• October 2023: Cash sales ($224,000) + Accounts receivable ($324,960) = $548,960
• November 2023: Cash sales ($256,000) + Accounts receivable ($370,080) = $626,080
• December 2023: Cash sales ($288,000) + Accounts receivable ($473,850.23) = $761,850.23

Step 5: Calculate the cash payments for each expense category:

• Cash purchases: October 2023 ($180,000) + November 2023 ($230,000) + December 2023 ($245,000) =$655,000
• Payments to Creditors: October 2023 ($180,000) + November 2023 ($130,000) + December 2023 ($145,000) =$455,000
• Wages and salaries: October 2023 ($105,000) + November 2023 ($130,000) + December 2023 ($145,000) =$380,000
• Selling and distribution expense: October 2023 ($10,000) + November 2023 ($15,000) + December 2023 ($25,000) =$50,000
• Company tax expense: October 2023 ($11,000) + November 2023 ($16,000) + December 2023 ($24,000) =$51,000
• Administrative expenses: 45% of cash purchases for each month = 45% of ($180,000 +$230,000 + $245,000) =$247,500
• Property tax expense: 15% of cash purchases for each month = 15% of ($180,000 +$230,000 + $245,000) =$97,500

Step 6: Calculate the net cash flow for each month:

• October 2023: Cash receipts ($548,960) - Cash payments ($655,000) = -$106,040
• November 2023: Cash receipts ($626,080) - Cash payments ($455,000) = $171,080
• December 2023: Cash receipts ($761,850.23) - Cash payments ($455,000) = $306,850.23

Step 7: Calculate the closing balance for each month:

• October 2023: Opening balance ($32,000) + Net cash flow (-$106,040) = -$74,040
• November 2023: Opening balance (-$74,040) + Net cash flow ($171,080) = $97,040
• December 2023: Opening balance ($97,040) + Net cash flow ($306,850.23) = $403,890.23

Now, to answer question 4 (ii), we need to determine if there is a cash surplus or a budget deficit based on the cash budget prepared above.

• October 2023: There is a budget deficit of -$74,040.
• November 2023: There is a cash surplus of $97,040.
• December 2023: There is a cash surplus of $403,890.23.

Since there are cash surpluses in November and December, the entity can consider different strategies for investing the excess cash. Some options include:

1. Investing in short-term fixed deposits or money market funds.
2. Investing in low-risk government bonds.
3. Investing in stocks or mutual funds for potential long-term growth.

If there is a cash budget deficit, the company can consider different methods of raising sources of funds/finance to cushion the negative cash and cash equivalent. Some options include:

1. Obtaining a short-term loan from a bank or financial institution.
2. Negotiating extended payment terms with suppliers.
3. Implementing cost-cutting measures to reduce expenses.
4. Increasing sales efforts to generate more cash inflows.

It is important for the company to carefully analyze its financial situation and consider the potential risks and benefits of each strategy before making any decisions.