Question

The cash budget was prepared with the following assumptions:

The Company has borrowed a $500,000 revolving loan on 31 December last year, charging 1% interest per month.  

Borrowing should be made to bring the Company to minimum $4,000 cash balance at each month end.

Partially loan repayment should be made whenever there is any excess cash. Borrowing and repayment of the loans should be in multiples of $1,000. It is assumed that borrowing occurs at the beginning of the month while loan repayment is made at the end of the month.

Cash Budget	Jan
Beginning cash balance	44,000
Cash receipts and disbursements:
Collections from customers	49,000
Payments to suppliers	(45,000)
Payments for operating expense	(13,000)
Excess (deficiency) of cash before financing	35,000

calculate the Jan amount of the followings IF Interest is paid at every month end.

a) borrowing / repayment;

b) the interest expense

Answer 1

particulars	amt [$]
opening cash balance	44,000
receipt : collection from customers	49000
excess of cash before financing	35000
less: payment to suppliers	(45000)
less:payments for operating expenses	(13000)
less: the interest paid in jan= (5,00,000*1%)per month	(5000)
cash balance at the end	65,000
less: repayment of loan in multiple of $1000	(61,000)
cash balance at the end of jan	4000

interest paid in jan =5,00,000*1% =5000

and repayment of loan is multiple of $1000 i.e.61,000 because compulsory $4000 maintain balance every month...