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Question 3: Jenny Poon, the General Manager of Land Investment Limited, faced ...

Oct 6, 2024

Let's break down your question step by step! a. Calculate the ending cash balance for the budget period. To find the ending cash balance, we can use the following formula:

\text{Ending Cash Balance} = \text{Beginning Cash Balance} + \text{Cash Collections} - \text{Total Cash Outflows}

Where Total Cash Outflows includes the purchase of merchandise inventory, selling and administrative expenses, and capital expenditures. 1. Beginning Cash Balance: $12,000 2. Cash Collections: $273,200 3. Total Cash Outflows: - Purchase of Merchandise Inventory:

139,760 - Selling and Administrative Expenses:

28,280 - Capital Expenditures: $35,440 Calculating Total Cash Outflows: \[ \text{Total Cash Outflows} = 139,760 + 28,280 + 35,440 = 203,480 \] Now, plug these values into the formula: \[ \text{Ending Cash Balance} = 12,000 + 273,200 - 203,480 = 81,720 \] So, the ending cash balance for the budget period is $81,720. b. Identify and explain at least two ways that the company can change its inventory level to achieve a better cash budget performance. 1. Reduce Inventory Levels: By minimizing the amount of inventory on hand, the company can free up cash that would otherwise be tied up in unsold goods. This can be achieved through better inventory management practices, such as just-in-time inventory systems. 2. Increase Inventory Turnover: The company can focus on increasing sales to improve inventory turnover. This can be done by implementing promotional strategies or discounts to encourage quicker sales, thus reducing the amount of cash tied up in inventory. c. Explain the following approaches to budget setting and give two advantages of each approach. # i. A "top-down" approach: In a top-down approach, senior management sets the budget targets and allocates resources without much input from lower-level managers. Advantages: 1. Speed: This approach can be quicker as it requires less time for discussions and negotiations among various levels of management. 2. Alignment with Strategic Goals: Senior management can ensure that the budget aligns closely with the overall strategic objectives of the organization. # ii. A "bottom-up" approach: In a bottom-up approach, lower-level managers provide input and estimates for their departments, which are then consolidated to form the overall budget. Advantages: 1. Increased Accuracy: Managers who are directly involved in operations may provide more accurate and realistic budget estimates based on their firsthand knowledge. 2. Higher Motivation: Involving employees in the budgeting process can lead to greater buy-in and commitment to achieving the budget goals, as they feel their input is valued. d. Explain the following accounting terms: # i. Going concern concept: The going concern concept assumes that a business will continue to operate indefinitely and not liquidate in the foreseeable future. This is important for financial reporting, as it affects how assets and liabilities are valued. # ii. Reliability: Reliability in accounting refers to the quality of information that is trustworthy and can be depended upon by users. Reliable financial statements are free from significant error and bias, providing a true representation of the company's financial position. # iii. Understandability: Understandability means that financial information should be presented clearly and concisely, making it accessible and comprehensible to users who have a reasonable knowledge of business and economic activities. This ensures that stakeholders can make informed decisions based on the financial data provided. If you have any further questions or need clarification on any of these points, feel free to ask!