In: Accounting
this is an accounting question
An organization is considered to be begin an income generating
project...
this is an accounting question
An organization is considered to be begin an income generating
project to get a better financial position .The Board of Directors
requested the accountant help in preparing an operating budget
including a cash budget for the six months ending 31/12/2019. The
Board of Directors has promised to secure $100,000 for this project
if it proves to be profitable.
You gathered the following information:
- $100,000 is expected to be secured by the Board of Directors
and the project will start on 1/7/2019.
- A building will be rented at an annual rent fee of $24,000. It
is expected that the rent of the first three months will be paid in
advance.
- It is expected that utilities will be $5,000 per quarter
payable at the beginning of the following quarter.
- Furniture will be purchased for $4,080 in July 2019. The
estimated useful life of this equipment is 2 years.
- Equipment will be purchased for $79,200. 50% will be paid at
the time of purchase i.e. in July 2020 and 50% in October 2020. The
estimated useful life of this equipment is 4 years.
- A vehicle will be purchased for $8,160 in July 2019. Annual
insurance is $1,500 payable in July 2019. The estimated useful life
of the vehicle is 4 years.
- It is estimated that raw materials usage will average $25,000
monthly. It is also estimated that purchases of raw materials will
be $50,000 in July 2019, $60,000 in September 2019, and $60,000 in
November 2019.
- It is expected that the payment of supplies will be made in the
month following the purchase.
- Salaries are expected to be $2,000/month for the first quarter
and $3,000 per month for the second quarter.
- Market analysis showed the following sales estimates. Sales
will be on credit with collections after 2 months of sales.
- Other operating expenses are estimated at $2,500 per
month.
|
July 16
|
Aug 16
|
Sept 16
|
Oct 16
|
Nov 16
|
Dec 16
|
Estimated Sales in $
|
0
|
20,000
|
30,000
|
50,000
|
100,000
|
100,000
|
Required: Prepare in good form
a. A profit and loss budget for the 6 months ending
31/12/2019.
b. A balance sheet budget as at 31/12/2019
c. A cash flow budget for the 6 months ending
31/12/2019.
d. As a Board of Director Member would you approve to
fund the project. Why?