ENT1/6 FINANCIAL MANAGEMENT SKILLS ASSIGNMENT

1. (a) Outline four main causes of cash flow problems in an enterprises

(b) KAPAPALA ENTERPRISES LTD has the following cash flow projections in   the 1^st quarter of the year 2017

1. Cash shortfall brought down from last month of the last quarter 2014 was shs 5,890,000.
2. Commission income for the first quarter shs 6,000,000. This is to be spread in 3 months of the first quarter of the year in ratios 3:2:1 respectively.

• Donations (first month of 1^st quarter) shs 8,000,000.

1. Machine disposal (in 2^nd month of the 1^st quarter of the year) was projected to be shs 4,000,000
2. A loan to be obtained in the 1^st month of the 2^nd quarter of the year shs 10,000,000. This will attract a monthly interest of 5% starting with the 2^nd month of the 2^nd quarter of the year.
3. Cash to be received from trade debtors as follows;

1^st month 3,040,000

2^nd month 5,360,000

3^rd month 7,280,000

• Debentures of shs 16,820,000 and shs 5,740,000 for the 1^st month and 2^nd month of the 1^st quarter respectively were to be obtained.
• A cash refund of shs 900,000 is to be received from suppliers in the 1^st This is in respect of overpayment made on cash purchases made in the last month of the previous quarter.

1. Monthly cash purchases to amount to shs 3,900,000
2. Debenture repayment is to be effected in the last month of the 1^st quarter and the 1^st month of the 2^nd month of the year for the two debentures obtained respectively.
3. Credit purchases for the period are projected to be shs 21,000,000 in the last month of the 1^st However, no payments to credit supplier’s will be made until 2^nd month of the 2^nd quarter.

• Equipments are to be purchased during the 1^st month of the 1^st quarter at a cost of shs 16,000,000
• The enterprise projects monthly cash sales of shs 20,950,000. This will attract a monthly sales tax of 15% per the cash sales made in that month.
• Audit fees per month are to be shs 750,000. This will be paid once in the last month of the 1^st
• Wages and salary bills per month will total to shs 810,000.
• Purchase of machinery in the 2^nd month of the 1^st quarter of the year is to cost shs 5,000,000.
• Repairs and Maintenance per month are to cost the enterprise shs 320,000.
• Non – current assets to depreciate at a rate of 3% by the end of the 1^st
• Rent income of shs 650,000 per month is projected in the 1^st quarter of year starting with the 1^st

You are required to prepare Kapapala’s cash flow statement for the 1^st quarter of the year.

What measures can Kapapala enterprises Ltd put in place in order to avoid cash short falls in the subsequent period?

1. SMART BUSINESS CENTRE presented the following cash inflow and cash outflows for the month of august 2017.

August 2017                                                          amount (shs)

Balance c/d                                                           8,400,000

Cash inflows

Cash sales                                                             250,000,000

Cash collected from debtors                                    43,000,000

Loan from centenary bank                                      30,000,000

Penalties for delayed payments                               1,500,000

Commission income                                               6,000,000

Interest on cash deposits                                       500,000

Donations and grants received                                30,000,000

Total cash inflows                                               369,400,000

Cash outflows

Purchase of stock                                                   110,000,000

Labour cost                                                            60,000,000

Power and utilities                                                  5,000,000

Administrative costs                                               1,500,000

Payments to creditors                                            50,000,000

Purchase of machinery                                           21,000,000

Total cash outflow                                                  247,500,000

However the following projections are available for the months of September, October and November 2017.

• Cash sales revenue is expected to increase by 5% in September and October. It will drop by shs 500,000 in the month of November.
• Cash collections from debtors will increase by 10% in September and October. No cash will be received from Debtors in the month of November
• No further loans will be received until December 2017.
• Commission income is expected to double in the month of September and reduce by of September’s commission income in the next two months.
• SMART Business Centre will continue receiving interest on deposits equivalent to what was received in August.
• Donations and grants were received only in August and no further penalties on delayed payments will be charged.
• De-capitalization of Assets will be done in September and this will generate shs 13,000,000.
• Cash purchase of stock will be maintained at the same level in September and October. However it will drop by 10,000,000 in the month of November.
• Labour costs for September, October and November will also be the same as that of August.
• Power and utilities will also be the same as they appear in August.
• There will be an increase of shs 500,000 monthly in the administrative costs.
• The business is expected to start paying corporation tax every month of shs 2,000,000. However, this will be paid as a single sum in November.
• The loan acquired in August will be paid back in 6 installments starting in the month of September.
• SMART Business Centre will pay a monthly interest on the loan at a rate of 5% on reducing balance starting in September.
• The will donate shs 1,000,000 to Good Samaritan children’s Centre in September. This will increase by 4% every month.
• The proprietor is expected to use shs 1,600,000 every month for his family needs starting in October 2017.

Required

1. Prepare a cash flow statement for SMART BUSINESS CENTRE for the months of September, October and November 2017.
2. Interpret the Net cash position of the business.

1. Jabex limited a company dealing in general merchandise, expected opening balance of shs 30 million in January 2014. The budgeted sales for the months were as given below

Month                                                shs (000)

November 2013                                 80,000

December 2013                                  90,000

January 2014                                     75,000

February 2014                                   75,000

March 2014                                        80,000

Analysis of records shows that customers settle their debts in their following pattern

• 60% within the month of sales
• 25% the following month
• 15% in the second month after sale.

Extracts from the purchase budgeted were as follows

(Shs 000)

December                                 60,000

January                                    55,000

February                                   45,000

March                                       55,000

• All purchases are collected on credit and past experience show that 90% are settled in month of purchase and the balance in the following month.
• Wages of 15 million, transport (expenses) of shs 20 million including depreciation of 5 million are settled monthly
• Tax of shs 8 million is to be paid in February and the company will receive settlement of an insurance claim of shs 25 million in March.

Required

Prepare the statement of cash flow for the business for three months starting with January 2014.

Interpret the net cash position of the business