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Question on Budgeting

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Question on Budgeting

  • This topic has 3 replies, 2 voices, and was last updated 5 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • September 26, 2019 at 6:15 pm #547467
    accountaholic
    Member
    • Topics: 2
    • Replies: 2
    • ☆

    Q:
    Selected figures from a firm’s budget for next month are as follows.
    Sales $450,000
    Gross profit on sales 30%
    Decrease in trade payables over the month $10,000
    Increase in cost of inventory held over the month $18,000
    What is the budgeted payment to trade payables?
    A $343,000 B $323,000
    C $307,000 D $287,000

    Answer: Payment = $(450,000 × 70% + 18,000 + 10,000) = $343,000

    I did not understand why (Decrease in trade payables) $10,000 should be added to calculate the budgeted payment.

    September 27, 2019 at 9:03 am #547485
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54696
    • ☆☆☆☆☆

    Let me explain with a little example.

    Suppose you start the month owing 10,000. During the month you buy goods for 100,000.
    So if you paid nothing you would then owe 110,000.

    If you had paid only 90,000 then you would be owing 110,000 – 90,0000 = 20,000, so payables would have increased.
    However if you had paid 105,000 then you would be owing only 110,000 – 105,000 = 5,000, so payables would have decreased.

    For payables to have decreased you must have paid more than what you bought during the month.

    I hope that makes sense 🙂

    September 27, 2019 at 2:42 pm #547498
    accountaholic
    Member
    • Topics: 2
    • Replies: 2
    • ☆

    Ah, I get it now.
    Thank you, Sir.

    September 27, 2019 at 3:08 pm #547499
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54696
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Question on Budgeting’ is closed to new replies.

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