Question

Freewheel is in the process of preparing its master budget for the six months ending December 19X2. The balance sheet for the year ended 30 June 19X2 is estimated to be as follows: Cost Deprec prov NBV

Fixed assets 140.000 14.000 126.000

Current assets

Stock 25.000

Trade debtors 24.600

Bank 3.000

Net current liabilities 52.600

Creditors Amount falling due within one year

Trade creditors 25.000

Other creditors 9.000

34.000

Net current assets 18.600

Total assets less current liabilities 144.600

Capital and reserves

Share capital 100.000

Profit and loss account 44.600

144.600

The budget committee have derived the following trading forecasts for the six months ended 31 December 19X2.

Sales Wages Overheads Purchase Issue of

in and excl of fixed 20.000

units Purchases salaries deprec assets 1£shares Dividends

May 4.000 12.000 8.000 7.000

June 4.200 13.000 8.000 7.000

July 4.500 14.000 8.000 7.000

August 4.600 18.000 10.000 7.000

September 4.800 16.000 10.000 7.000 20.000

October 5.000 14.000 10.000 8.000 10.000

November 3.800 12.000 12.000 8.000 30.000

December 3.000 12.000   12.000 8.000

The selling price in May 19X2 was £6 per unit and this is to be increased to £8 per unit in October 50% of sales are for cash and 50% on credit to be paid two months later.

Purchase are to be paid for two months after purchase. Wages and salaries to be paid 75% in the month incurred and 25% in the following month.Overheads are to be paid in the month after they are incurred.The fixed assets are to be paid for in three equal instalments in the three months following purchase. Dividends are to be paid three months after they are declared and the receipts from the share issue are budgeted to be received in the month of issue. Fixed assets are depreciated 10% per annum on a straight line basis on those assets owned at 31 December 19X2. Closing stock at the beginning of the period under review as equal to the previous two months purchases. At 31 december 19X2 it was equal to three months purchases.

Prepare the following budgets for the six months ended 31 December 19X2.

Cash budget,budgeted profit and loss account, budgeted balance sheet.

Answer 1

Ques 1
CASH BUDGET FOR SIX MONTHS ENDING DECEMBER 20X2
		July	August	Sept	Oct	Nov	Dec	TOTAL
RECEIPTS	Note	$	$	$	$	$	$	$
Cash sales	1	13,500	13,800	14,400	20,000	15,200	12,000	88,900
Receivables	2	12,000	12,600	13,500	13,800	14,400	20,000	86,300
New share issue				20,000				20,000
TOTAL- (A)		25,500	26,400	47,900	33,800	29,600	32,000	195,200
PAYMENTS
Purchases	3	12,000	13,000	14,000	18,000	16,000	14,000	87,000
Wages	4	8,000	9,500	10,000	10,000	11,500	12,000	61,000
Overheads	5	7,000	7,000	7,000	7,000	8,000	8,000	44,000
CAPEX	6						10,000	10,000
TOTAL- (B)		27,000	29,500	31,000	35,000	35,500	44,000	202,000
Net Cash flow	7	-1,500	-3,100	16,900	-1,200	-5,900	-12,000	-6,800
Balance b/f	8	3,000	1,500	-1,600	15,300	14,100	8,200	3,000
Balance C/f		1,500	-1,600	15,300	14,100	8,200	-3,800	-3,800
Notes
1. Cash sales: July :- 4,500 units X 6 X50%
2.     Receivables: July:- After 2 months- May sales: 4000units*6*50%
3.    Purchases: July :- After 2 months – May purchases 4.	Wages: July:- 75%*8,000(July)+ 25%*8,000(June)
5.   Overheads: July:- 7,000 incurred in June
6.    CAPEX: non-current assets will be paid in three equal instalments of 10,000 from December 20X2
7.  Net cash flow= Total receipts (A) less Total Payments (B)
8.   Balance b/f is the opening cash balance which is the previous month’s closing balance
Ques 2
FORECAST INCOME STATEMENT
Revenue		177,800
less: Cost of Sales
Opening Inventory	25,000
Purchases	86,000
	111,000
Less Closing inventory	34,000	77,000
		100,800
Less Expenses
wages & salaries	62,000
overheads	45,000
Depreciation*	8,500	115,500
profit / (loss)		-14,700
Retention b/f		44,600
		29,900
Dividend		-10,000
Retention c/f		19,900
Depreciation = (140000+30000)* 10% * 6/12
Ques 3
Balance sheet
Current assets
inventory	34000
Trade receivables	27200	61200
Non current assets
cost	170000
less:Acc dep	-22500	147500
total assets		208700
Libailities
Trade payables	24000
other payables	41000
bank o/d	3800	68800
equity
share capital	120000
retained earnings	19900	139900
total liabilities & equity		208700