Question 3 The CEO of Roger Limited wishes to prepare a cash flow budget to estimate the company’s cash surplus or deficit. Rogers’s Statement of Financial position is as follows. Statement of Financial Position of Acme Acres Ltd as at 31 January 20X7 £'000 £'000 Non-current assets at cost Premises 1750 Less: accumulated depreciation on Premises 300 1450 Furniture 1000 Less: accumulated depreciation on Furniture 250 750 2200 Current assets Cash 150 Receivables 42 Closing Inventory 100 Prepaid expenses 38 330 TOTAL ASSETS 2530 Current liabilities: Payables 25 Short term loan 50 Outstanding Expenses 75 Bank overdraft 0 150 Non-current liabilities Debentures 480 480 Equity Ordinary share capital 1800 Share Premium 100 1900 TOTAL EQUITY & LIABILITIES 2530 Continued on next page 6 Additional Notes The directors of the company have prepared the following estimates for the next 6 months: (a) Sales and purchases are expected to be as follows: Sales £'000 Purchases £'000 February 40 22 March 37 20 April 40 22 May 41 23 June 44 24 July 50 27 (b) All sales are on credit. 60% of debtors pay one month after the month of sale. 30% of debtors pay two months after the month of sale. 10% of the debtors pay three months after the sale. Sales in January 20X7 were £38,000. Sales in December 20X6 were £36,000. (c) All purchases are on one month’s trade credit. (d) The Short-term loan is due for payment in March 20X7. (e) The Outstanding expenses are due for payment in April 20X7. (f) Administration and finance expenses (including depreciation of Premises) are expected to be £30,000 per month in February and £35,000 per month in subsequent months. (g) Selling and distribution expenses (including depreciation of Furniture) are expected to be £40,000 per month in February and £43,000 per month in subsequent months. (h) Depreciation of Premises is at the rate of 12% of cost per annum. (i) Depreciation of Furniture is at the rate of 15% of cost per annum. Required: - a) Prepare a cash budget for Roger Limited for the six months ended 31 July 20X7 which shows the cash balance at the end of each month. b) Critically discuss the cash flow problems will the company face over the next six months and how might the company deal with them?
Question 3
The CEO of Roger Limited wishes to prepare a
surplus or deficit. Rogers’s
Statement of Financial Position of Acme Acres Ltd as at 31 January 20X7
£'000 £'000
Non-current assets at cost
Premises 1750
Less:
Furniture 1000
Less: accumulated depreciation on Furniture 250 750
2200
Current assets
Cash 150
Receivables 42
Closing Inventory 100
Prepaid expenses 38 330
TOTAL ASSETS 2530
Current liabilities:
Payables 25
Short term loan 50
Outstanding Expenses 75
Bank overdraft 0 150
Non-current liabilities
Debentures 480 480
Equity
Ordinary share capital 1800
Share Premium 100 1900
TOTAL EQUITY & LIABILITIES 2530
Continued on next page
6
Additional Notes
The directors of the company have prepared the following estimates for the next 6 months:
(a) Sales and purchases are expected to be as follows: Sales £'000 Purchases £'000
February 40 22
March 37 20
April 40 22
May 41 23
June 44 24
July 50 27
(b) All sales are on credit. 60% of debtors pay one month after the month of sale. 30% of debtors pay
two months after the month of sale. 10% of the debtors pay three months after the sale. Sales in
January 20X7 were £38,000. Sales in December 20X6 were £36,000.
(c) All purchases are on one month’s trade credit.
(d) The Short-term loan is due for payment in March 20X7.
(e) The Outstanding expenses are due for payment in April 20X7.
(f) Administration and finance expenses (including depreciation of Premises) are expected to be
£30,000 per month in February and £35,000 per month in subsequent months.
(g) Selling and distribution expenses (including depreciation of Furniture) are expected to be £40,000
per month in February and £43,000 per month in subsequent months.
(h) Depreciation of Premises is at the rate of 12% of cost per annum.
(i) Depreciation of Furniture is at the rate of 15% of cost per annum.
Required: -
a) Prepare a
cash balance at the end of each month.
b) Critically discuss the cash flow problems will the company face over the next six months and how
might the company deal with them?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
