Reference no: EM133069989

Question - Mr Mattar has made the following estimates for his business, Farm-Tool, for the next four quarters:

	Quarter ending
	30 September 2020	31 December 2020	31 March 2021	30 June 2021
	$	$	$	$
Sales revenue	200,000	240,000	240,000	200,000
Purchases	75,000	75,000	75,000	75,000
Cost of sales	100,000	96,000	120,000	80,000
Marketing and administration expenses	40,000	90,000	80,000	80,000
Rental expenses	18,000	18,000	18,000	18,000
Depreciation expenses	1,000	1,000	1,000	1,000

All sales are made on credit terms. The historical and expected collection pattern is: 80 per cent is collected in the quarter of sale and 20 per cent in the following quarter. In order to obtain the best discount from suppliers, Farm-Tools will pay for the purchases on cash basis. The marketing and administration expenses are paid when incurred. Rental expenses are paid quarterly in advance under the five-year tenancy signed in January 2020.

Mr Mattar wishes to renovate the shop at an estimated cost of $85,000. The renovation work will require an advance payment of 40% on 1 October and the balance upon completion on 1 January 2021.

Sales revenue as at 30 June 2020 is $500,000.

The bank balance at 30 June 2020 is estimated as $100,000.

Required -

(a) Prepare a cash budget (on a quarterly basis) for Farm-Tools for the 12 months ending 30 June 2021.

(b) Explain whether there is sufficient fund for the intended renovation works.