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- 20 Marks
Question
Brofre Limited retails fertilizer to farmers in Ghana. The company has approached its bankers to provide funding for next year’s operations, and a three-month master budget has been requested for review by the bankers.
You have been approached by the management as a consultant to prepare the 1st quarter budget for the banker’s consideration for its next year’s operations.
End of Accounting year December 2014:
| Item | GHS |
|---|---|
| Debtors | 23,000 |
| Bank balance | 55,000 |
| Fixed asset at cost | 698,000 |
| Provision for depreciation | 98,000 |
| Creditors Balance | 48,000 |
| Operating expenses (Dec) | 60,000 |
| Sales (Dec) | 400,000 |
| December Ending Inventory | 20,000 |
| Retained earnings | 120,000 |
Additional information provided:
- Depreciation is provided at the rate of 5% on the cost of non-current assets.
- Closing inventory is expected to increase by GHS 2,000 in January from December levels. This is expected to increase by the same figure in February from the projected figure in January. It is expected that in March, closing inventory is desired to be GHS 26,000.
- The company makes a profit of 25% on its sales.
- Operating expenses are expected to increase by 10% from that of December and this is projected to increase at the same growth rate until March.
- Sales are projected to grow by 15% from December until March.
- The Debtors figure is desired to be proportional to the sales values.
- Creditors value for the three months is expected to be as follows: January – GHS 50,000; February – GHS 46,000; March – GHS 52,000.
You are required as a consultant for Brofre Limited to prepare for their bankers:
a) The budgeted income statement for the three months. (7 marks)
b) The budgeted statement of financial position for the three months. (7 marks)
c) The cash budget for the three months. (6 marks)
(Total = 20 marks)
Answer
a) Budgeted Income Statement for Brofre Limited:
| Item | December 2014 | January 2015 | February 2015 | March 2015 |
|---|---|---|---|---|
| Sales | 400,000 | 460,000 | 529,000 | 608,350 |
| Opening Stock | 20,000 | 22,000 | 24,000 | |
| Purchases | 347,000 | 398,750 | 458,263 | |
| Cost of Goods Available | 367,000 | 420,750 | 482,263 | |
| Less Closing Stock | 22,000 | 24,000 | 26,000 | |
| Cost of Sales | 345,000 | 396,750 | 456,263 | |
| Gross Profit | 115,000 | 132,250 | 152,088 | |
| Operating Expenses | 60,000 | 66,000 | 72,600 | 79,860 |
| Depreciation | 34,900 | 34,900 | 34,900 | |
| Total Expenses | 100,900 | 107,500 | 114,760 | |
| Net Profit | 14,100 | 24,750 | 37,327 |
b) Budgeted Statement of Financial Position for Brofre Limited:
| Item | December 2014 | January 2015 | February 2015 | March 2015 |
|---|---|---|---|---|
| Non-Current Assets | ||||
| Fixed Assets at Cost | 698,000 | 698,000 | 698,000 | 698,000 |
| Less Depreciation | 98,000 | 132,900 | 167,800 | 202,700 |
| Book Value | 600,000 | 565,100 | 530,200 | 495,300 |
| Current Assets | ||||
| Stock | 20,000 | 22,000 | 24,000 | 26,000 |
| Debtors | 23,000 | 26,450 | 30,418 | 34,980 |
| Cash Balance | 55,000 | 100,550 | 150,233 | 221,897 |
| Total Current Assets | 98,000 | 149,000 | 204,650 | 282,878 |
| Total Assets | 698,000 | 714,100 | 734,850 | 778,178 |
| Current Liabilities | ||||
| Creditors | 48,000 | 50,000 | 46,000 | 52,000 |
| Equity | ||||
| Owners Capital | 530,000 | 530,000 | 530,000 | 530,000 |
| Retained Earnings | 120,000 | 134,100 | 158,850 | 196,178 |
| Total Equity and Liabilities | 698,000 | 714,100 | 734,850 | 778,178 |
c) Cash Budget for Brofre Limited:
| Item | January 2015 | February 2015 | March 2015 |
|---|---|---|---|
| Cash Inflows: | |||
| Cash Received from Debtors | 456,550 | 525,033 | 603,787 |
| Cash Outflows: | |||
| Payment to Creditors | 345,000 | 402,750 | 452,263 |
| Operating Expenses | 66,000 | 72,600 | 79,860 |
| Total Cash Outflows | 411,000 | 475,350 | 532,123 |
| Net Cash Flow | 45,550 | 49,683 | 71,665 |
| Opening Cash Balance | 55,000 | 100,550 | 150,233 |
| Closing Cash Balance | 100,550 | 150,233 | 221,897 |
Workings:
Debtors:
| Item | January 2015 | February 2015 | March 2015 |
|---|---|---|---|
| Balance B/F | 23,000 | 26,450 | 30,418 |
| Add Sales | 460,000 | 529,000 | 608,350 |
| Less Closing Debtors | -26,450 | -30,418 | -34,980 |
| Cash Received | 456,550 | 525,033 | 603,787 |
Creditors:
| Item | January 2015 | February 2015 | March 2015 |
|---|---|---|---|
| Balance B/F | 48,000 | 50,000 | 46,000 |
| Add Purchases | 347,000 | 398,750 | 458,263 |
| Less Closing Creditors | -50,000 | -46,000 | -52,000 |
| Cash Paid | 345,000 | 402,750 | 452,263 |
- Tags: Budgeting, Cash Budget, Financial Position, Income Statement
- Level: Level 2
- Topic: Budgetary control
- Series: NOV 2015
- Uploader: Joseph