jane parker is going to set up a new business in bruges on 1 january 20×1 she estima 530156 | Homework Solutions

Jane Parker is going to set up a new business in Bruges on 1 January 20X1. She estimates that her first

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six months in business will be as follows:

(i) She will put A150,000 into the firm on 1 January 20X1.

(ii) On 1 January 20X1 she will buy machinery A30,000, motor vehicles A24,000 and premises A75,000, paying for them immediately.

(iii) All purchases will be effected on credit. She will buy A30,000 goods on 1 January and she will pay for these in Februar y. Other purchases will be: rest of January A48,000; February, March, April, May and June A60,000 each month. Other than the A30,000 worth bought in Januar y, all other purchases will be paid for two months after purchase, i.e. A48,000 in March.

(iv) Sales (all on credit) will be A60,000 for January and A75,000 for each month after that. Customers will pay for goods in the third month after purchase, i.e. A60,000 in April.

(v) Inventor y on 30 June 20X1 will be A30,000.

(vi) Wages and salaries will be A2,250 per month and will be paid on the last day of each month.

(vii) General expenses will be A750 per month, payable in the month following that in which they are incurred.

(viii) She will introduce new capital of A75,000 on 1 June 20X1. This will be paid into the business bank account immediately.

(ix) Insurance covering the 12 months of 20X1 of A26,400 will be paid for by cheque on 30 June 20X1.

Accounting and reporting on an accrual accounting basis • 35

(x) Local taxes will be paid as follows: for the three months to 31 March 20X1 by cheque on 28 Februar y 20X2, delay due to an oversight by Parker; for the 12 months ended 31 March 20X2 by cheque on 31 July 20X1. Local taxes are A8,000 per annum.

(xi) She will make drawings of A1,500 per month by cheque.

(xii) All receipts and payments are by cheque.

(xiii) Depreciate motor vehicles by 20% per annum and machinery by 10% per annum, using the

straight-line depreciation method.

(xiv) She has been informed by her bank manager that he is prepared to offer an overdraft facility of

A30,000 for the first year.

Required:

(a) Draft a cash budget (for the firm) month by month for the period January to June, showing clearly the amount of bank balance at the end of each month.

(b) Draft the projected statement of comprehensive income for the first six months” trading, and a statement of financial position as at 30 June 20X1.

(c) Advise Jane on the alternative courses of action that could be taken to cover any cash deficiency that exceeds the agreed overdraft limit.

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