Roger is considering setting up in business, importing art and craft work from South America. He has made the following estimates of the activities for the first year. (i) (ii) He will transfer 10 000 to the business bank account to set the business up on 1 April. He will need to rent a small shop at a cost of 800 per month payable in advance. (iii) Shop equipment will cost 5000 and a further 2000 will be needed for a computer. The equipment is expected to last eight years but the computer he estimates will last about three years. The equipment will be paid for in May but the computer will be a cash purchase in April. (v) (iv) He estimates sales will be 5000 for the launch in April, dropping to 3000 in May but increasing to 4000 in June and 6000 for July onwards. He will invest in stock initially at a cost of 10 000 which he will pay for in April. However he estimates that normally he will have two months to pay for the goods but all sales will be for cash. The selling price will be at cost plus 50 per cent. He will reorder stock as soon as it is sold. (vi) He will need to pay running expenses averaging 300.00 per month. (vii) He intends to draw out 800 per month as his salary for the first Required year.

(a) Prepare a monthly cash forecast for Roger for the first year of trading.

(b) Draw up a draft profit and loss account for the first year.

(c) Reconcile the change in the cash figure to the profit for the year.

(d) What level of overdraft would you negotiate with the bank?