17.13A Silas is starting out in business on his own, running a shop selling scuba diving gear. He has gained a lot of free publicity for his new venture by writing articles in specialist trade and enthusiasts' magazines, and he is well known as a leading expert on scuba diving. He is therefore fairly confident that he will be able to start selling in reasonable quantities straight away.

Silas is renting shop premises, and his principal start-up cost has been the cost of equipping the shop with stock. He has also invested in an electronic till, a computer for keeping track of stock and dealing with correspondence, and some general shop fixtures and fittings. His expenditure just prior to start up is:

£

Stock 42 000 Computer 2 500 Till 1 000 Fixtures & fittings 3 500 Total 49 000 Silas also transfers £6000 from his own bank account into a new business bank account. He has sold his house to finance the new venture and is currently living in the flat above the shop.

In his first year in trading Silas plans the following sales and purchases of stock:

Sales Purchases

£

£

April 1 500 2 250 May 4 500 3 750 June 8250 6 750 July 9 000 7 500 August 12 000 7 500 September 12 000 7 500 October 12 000 6750 November 10 500 6 750 December 12 000 6375 January 7 500 6375 February 9 000 5 625 March 10 500 6 000 108750 73 125 It is expected that most sales will be for cash, but 25% are planned to be made on credit to scuba diving organisations. Credit sales are expected to be settled in full in the month after invoicing.

Purchases of stock will be on credit, with payment made in full in the month following purchase. Closing stock at the end of March is budgeted at £42 045.

Silas has budgeted for the following expenses:

Expense item Rent Insurance Phone Water rates Business rates Wages Payment details 6000 Payable in quarterly instalments in April, July, October and January 1200 Payable in April 600 Quarterly bills of 150 to be paid in June, September, December and March 750 Payable in May 1500 Payable in April 1800 150 to be paid each month 300 150 in May and 150 in November Subscriptions Sundry admin and other expenses 2400 200 to be paid each month Silas plans to draw £1000 from the business in cash each month.
The computer will be subject to depreciation on a straight-line basis over four years. Fixtures and fittings and the electronic till have an estimated useful life of 10 years and will be depreciated on a straight-line basis. No residual values are expected at the end of the assets' useful lives.
Prepare the following statements for Silas:
i) Budget cash flow statement showing the cash movement in each of the first 12 months of business.
ii) Budget profit and loss account for the 12 months ending 31 March.
iii) Budget balance sheet at 31 March.