The directors of Hamble Ltd have asked you, as a recently employed assistant management accountant, to prepare and review their cash budget. The bookkeeper started the cash budget but was unable to...

The directors of Hamble Ltd have asked you, as a recently employed assistant management accountant, to prepare and review their cash budget. The bookkeeper started the cash budget but was unable to complete it due to ill health.

In addition, Hamble Ltd requires you to evaluate the different funding options for its expansion plans.

Estimated sales and purchases for each of the nine months to September are given below:

Trade Receivables:
Credit sales are to be collected
two months
after the date they have been sold.

Trade Payables:
Credit purchases are to be paid
one month
after the date they have been purchased.

Borrowings:
The terms of a 5-year loan are coming to an end and Hamble Ltd are due to repay the capital of £1,000,000 on 31^st
July.

Current Liabilities:
Corporation tax of £100,000 is due to be paid to HMRC in the month of May.

Delivery vehicles:
Hamble Ltd has a policy of replacing delivery vehicles every 2 years. A number of delivery vehicles are due to be replaced under this policy in June at a cost of £1,250,000, but existing delivery vehicles will be traded in for £310,000 as part of the deal.

Other overheads:
Other overheads will be £2,200,000 per month settled on a monthly basis in the month incurred.

Cash:
Hamble Ltd expects to have £90,000 in cash at the beginning of April.

You are required to:

1. Using Excel, prepare a cash budget for the business for the 6-month period from April to September.

NOTE:  To achieve full marks you MUST show your working out, i.e. by using Excel cell referencing and formula.

1. Examine the cash budget you have prepared and advise the directors of Hamble Ltd of any possible solutions to cash flow problems that might be evident. Marks will be awarded depending on the depth of discussion.