can make mistakes Check impo in that month, in which case the commissions payable will then be deferred to the next possible month where the company has made a surplus in that particular month. (vii) Operating expenses of the company include a provision for policy holder refunds on cancellation of policies. This provision is set at 5% of the total projected gross premium revenue per month as given in the table above. (viii) Other than operating expenses, the company incurs administrative expenses which include salaries, rent and loss prevention costs. Salaries have historically cost Ugx.20,000,000 per month with 80% of that amount apportioned to full time staff and 20% apportioned to part time staff. Salaries for full time staff are expected to increase by 10% in April 2018 onwards. Rent payable by the company is Ugx. 3,000,000 per month but is payable 3-months in advance at the beginning of every quarter. Loss prevention costs incurred by the company amount to Ugx.1,000,000 per month. (ix) The beginning cash balance at the start of the year was Ugx.15,000,000. (x) (xi) Question The directors are expected to make cash drawings of Ugx.2,500,000 paid to them at the end of each month. The company intends to sell off some of its aging and obsolete vehicles and office equipment and expects to raise Ugx.30,000,000 and Ugx.35,000,000 in February and May 2019 when the disposals by public auction will take place. Prepare a six month cash budget for the company for the period January-June 2018 based on the information provided above. (25 Marks) 4. (i) SECTION B The following information has been obtained from the financial statements of Outer Scope Insurance Company and from discussions with the company's Budgeting and Control Accountant. claims Commissions Operating Month Gross premiums Net payable payable expenses December 2017 83,000,000 21,000,000 7,500,000 26,400,000 January 2018 88,000,000 26,200,000 8,250,000 30,500,000 February 2018 92,000,000 36,400,000 8,800,000 33,400,000 March 2018 85,000,000 29,100,000 7,900,000 28,200,000 April 2018 104,000,000 44,500,000 11,500,000 36,900,000 May 2018 94,500,000 32,000,000 9,600,000 29,350,000 June 2018 90,800,000 26,700,000 7,700,000 31,600,000 (ii) (iii) (iv) (v) (vi) The company's gross premium revenue is collected in full during the month the policies are written but includes amounts due to reinsurers. Amounts paid to the reinsurers average at 10% of the gross premium revenues and are paid out to the reinsurers in the month the policies are written. Net claims to be settled are paid by the company to its claimants as 50% in the month of claim and the remaining 50% in the month following claim. In March 2018, the company acquired a bank loan of Ugx.60,000,000 to facilitate expansion of its operations. The loan was acquired at an interest of 20% per annum. Interest is payable monthly commencing with the month following that in which the loan was acquired. At the beginning of the year, the company received an assessment from URA of Ugx.10,500,000 for corporation tax for the year 2017. In January 2018, the company made a partial payment to URA of Ugx.7,000,000 towards this effect and expects to pay the balance to URA at the end of March 2018. Commissions payable to brokers and agents are paid for in full in the month they are stipulated to be paid except for instances where the company has made a deficit 2

can make mistakes Check impo in that month, in which case the commissions payable will then be deferred to the next possible month where the company has made a surplus in that particular month. (vii) Operating expenses of the company include a provision for policy holder refunds on cancellation of policies. This provision is set at 5% of the total projected gross premium revenue per month as given in the table above. (viii) Other than operating expenses, the company incurs administrative expenses which include salaries, rent and loss prevention costs. Salaries have historically cost Ugx.20,000,000 per month with 80% of that amount apportioned to full time staff and 20% apportioned to part time staff. Salaries for full time staff are expected to increase by 10% in April 2018 onwards. Rent payable by the company is Ugx. 3,000,000 per month but is payable 3-months in advance at the beginning of every quarter. Loss prevention costs incurred by the company amount to Ugx.1,000,000 per month. (ix) The beginning cash balance at the start of the year was Ugx.15,000,000. (x) (xi) Question The directors are expected to make cash drawings of Ugx.2,500,000 paid to them at the end of each month. The company intends to sell off some of its aging and obsolete vehicles and office equipment and expects to raise Ugx.30,000,000 and Ugx.35,000,000 in February and May 2019 when the disposals by public auction will take place. Prepare a six month cash budget for the company for the period January-June 2018 based on the information provided above. (25 Marks) 4. (i) SECTION B The following information has been obtained from the financial statements of Outer Scope Insurance Company and from discussions with the company's Budgeting and Control Accountant. claims Commissions Operating Month Gross premiums Net payable payable expenses December 2017 83,000,000 21,000,000 7,500,000 26,400,000 January 2018 88,000,000 26,200,000 8,250,000 30,500,000 February 2018 92,000,000 36,400,000 8,800,000 33,400,000 March 2018 85,000,000 29,100,000 7,900,000 28,200,000 April 2018 104,000,000 44,500,000 11,500,000 36,900,000 May 2018 94,500,000 32,000,000 9,600,000 29,350,000 June 2018 90,800,000 26,700,000 7,700,000 31,600,000 (ii) (iii) (iv) (v) (vi) The company's gross premium revenue is collected in full during the month the policies are written but includes amounts due to reinsurers. Amounts paid to the reinsurers average at 10% of the gross premium revenues and are paid out to the reinsurers in the month the policies are written. Net claims to be settled are paid by the company to its claimants as 50% in the month of claim and the remaining 50% in the month following claim. In March 2018, the company acquired a bank loan of Ugx.60,000,000 to facilitate expansion of its operations. The loan was acquired at an interest of 20% per annum. Interest is payable monthly commencing with the month following that in which the loan was acquired. At the beginning of the year, the company received an assessment from URA of Ugx.10,500,000 for corporation tax for the year 2017. In January 2018, the company made a partial payment to URA of Ugx.7,000,000 towards this effect and expects to pay the balance to URA at the end of March 2018. Commissions payable to brokers and agents are paid for in full in the month they are stipulated to be paid except for instances where the company has made a deficit 2

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter8: Liabilities And Stockholders' Equity

Section: Chapter Questions

Problem 8.1.2MBA

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