Question

Preparation of cash budget forecast profit and loss account and balance sheet for a limited company. Courante Ltd.'s balance sheet at 31 December 19-1 is as follows: Fixed Assets Cost Dep. Net 16000 20000 4000 15000 9000 6000 Freehold premises Plant and machinery 35000 13000 22000 Current Assets Stock Trade debtors Cash at bank Administration expenses prepaid 12000 17000 9500 2400 40900 9000 Less: Current Liabilities Trade creditors Selling and distribution expenses accrued 52700 Less: Long term liabilities 12% Debentures 42700 1200 10200 30700 10000 Share Capital and reserves Ordinary share of £1 General Reserve Retained Earnings 42700 Sale and purchases for the four months to 30 April 19-2 are as follows: Feb Mar 25000 15000 2700 Jan Apr Sales Purchases 25000 10000 28000 8000 30000 12000 33000 15000 It is expected that 40% of sales will be for cash, one month's credit is allowed to debtors. One month's credit is allowed on all purchases, Additional information: 1. Selling and distribution expenses: 10% of sales, payable in following month. 2. Administration expenses: £8000 per month. Prepaid administration expenses at 30 April 19-2: £1300. 3. Stock at 30 April 19-2: £9000. 4. Additional machinery will be purchased on 1 March 19-2 at a cost of £24000. 5. Provision is made yearly for depreciation as follows: freehold premises: 3% on cost, plant and machinery 20% on cost. 50% of all depreciation is charged to selling and distribution expenses and the balance to administration expenses.

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Answer 1

a.)	Cash Budget for courante ltd for the four months to 30 April19-2.
		January	February	March	April
	Opening Balance	9,500	20,700	26,400	12,400
	Add: Collection
	Collection of trade debtor of 31 Dec.	17,000	-	-	-
	Cash Sales (40% of month sales )	10,000	11,200	12,000	13,200
	Collection of Credit sales ( 60% of month sale in following month)	-	15,000	16,800	18,000
	Total Cash Available	36,500	46,900	55,200	43,600
	Less: Payments
	Payment of trade creditors of 31 Dec.	9,000
	Payment of Purchases in following month	-	10,000	8,000	12,000
	Payment of selling & distribution of 31 Dec.	1,200	-	-	-
	Payment of selling & distribution (10% of month sale) in following month	-	2,500	2,800	3,000
	Payment for administration Expenses (8,000 - 2,400 )*	5,600*	8,000	8,000	9,300
	Payment for Additional Machinery	-	-	24,000	-
	Payment of Interim Dividend (25,000 x 0.10)	-	-	-	2,500
	Total Payments	15,800	20,500	42,800	26,800
	Closing Balance	20,700	26,400	12,400	16,800
b.)	Forecast profit & loss account for four months to 30 April 19-2
	Sales ( 25,000 + 28,000 + 30,000 + 33,000 )	116,000
	Less: Cost of Goods sold
	(12,000 + 10,000 + 8,000 + 12,000 + 15,000 -9,000)	48,000
	Gross Profit	68,000
	Less: Expenses
	Selling & Distribution ( 116,000 x 10% ) + (2,000 x 50% )	12,600
	Administration expenses ( 2,400 + 5,600 + 8,000 + 8,000 + 8,000 ) + (2,000 x 50% )	33,000
	Debenture Interest ( 10,000 x 12% x 4/12 )	400
	Total Expenses	46,000
	Net Income	22,000
	Depreciation:
	Freehold premises ( 20,000 x 3% x 4/12)	200
	Plant & Machinery ( 15,000 x 20% x 4/12) +( 24,000 x 20% x 2/12)	1,800
	Total Depreciation	2,000
	Forecast Balance sheet as at 30 April 19-2
	Fixed Assets	Cost	Dep.	Net
	Freehold Premises	20,000	4,200	15,800
	Plant & Machinery	39,000	10,800	28,200
		59,000	15,000	44,000
	Current Assets
	Stock		9,000
	Trade Debtors (33,000 x 60% )		19,800
	Cash at bank		16,800
	Administration expenses prepaid		1,300
			46,900
	Less: Current Liabilities
	Trade Creditors	15,000
	Interest on Debenture payable	400
	Selling & distribution expenses accrued (33,000 x 10% )	3,300	18,700	28,200
				72,200
	Less: Long term liabilities 12% debentures			10,000
				62,200
	Share Capital & reserves
	Ordinary share of £ 1			25,000
	General Reserve ( 15,000 + 10,000 )			25,000
	Retained earnings (2,700 + 22,000 - 10,000 - 2,500)			12,200
				62,200
				-