Merbau Sdn Bhd

Step-by-step way to tackle Merbau Sdn Bhd cash budget question.

Step 1 - Understand the question

1. Sadly there is no short cut
2. Read "Required First"
3. Pattern of paying - Every questions are UNIQUE!
4. Understand how cash is received from customers. (Cash, Credit and how those credit will be paid, eg in the same month, in the following months, another additional months)
5. Understand how cash is paid to supplier (same as no 4)
6. How payments are made (pay cash or in arrears of next months)

Step 2 - Cash receipts table

Read the question:

Estimated cost of merchandise sold:

June            RM250,000

July             RM300,000

August         RM380,000

September    RM320,000

 

40% of the cost of merchandise will be paid in the month of sale, and 60% of the cost

will be paid in the following month.

Start with June

Then with July

After that August

End with September

Step 3 - Set up the cash budget layout

You will fill in this table step-by-step according to the question

Step 4 - Opening Balance & fill in table for Step 2

Step 4 - Dealing with Credit Purcase

For Merbau Sdn Bhd - Straight forward from Question

Step 5 - Dealing with Wages, salaries and bonus

From the question:

• July wages & salaries: RM80,000
• August wages & salaries: RM75,000
• September wages & salaries: RM78,000
• In September, there is a 50% bonus based on September salary.

So:

• July cash payment = RM80,000
• August cash payment = RM75,000
• September cash payment = RM78,000 (salary) + 50% × RM78,000 (bonus)

$$\text{Bonus in September} = 0.50 \times 78{,}000 = 39{,}000$$
$$\text{Total wages in September} = 78{,}000 + 39{,}000 = \mathbf{RM117{,}000}$$

or simply

78,000 x 1.5 = RM117,000

Step 6 - Dealing with Rent and insurance (lump-sum in July)

The question says:

Six month’s rent and insurance amounting to RM18,000 is to be paid in July.

So:

• July: RM18,000
• August: 0 (already paid)
• September: 0

👉 Enter RM18,000 under July in the “Rent & insurance” row only.

(Even though it covers six months, cash goes out only in July)

Step 7 - Dealing with Income Tax

From the question:

An income tax of RM22,500 is to be paid in September.

So:

• July: 0
• August: 0
• September: RM22,500

Put this in the “Income tax” row under September.

Step 8 - New equipment (down payment only)

The question says:

New equipment costing RM50,000 will be acquired in August with a down payment of RM10,000.

So the cash outflow in this quarter is just the down payment:

• July: 0
• August: RM10,000
• September: 0

(The remaining RM40,000 is likely on credit, paid later – not part of this quarter’s cash budget unless the question says otherwise.)

Put RM10,000 under August in “New equipment (down payment)”.

Step 9 - Other operating expenses

From the question:

Other operating expenses = RM35,000 per month.

So:

• July: RM35,000
• August: RM35,000
• September: RM35,000

Put these in the “Other operating expenses” row for each month.

Step 10 – Compute total cash available for July & Total cash payments for each month

Step 11 – Compute ending cash Balance & bring forward to Beggining Cash Balance the following months

Compute ending cash Balance = Total Cash Available - Total cash payments

Bring forward to Begining Cash Balance the following months

Step 11 – Complete the cash budget month by month