16.6 Skippy is about to set up in business as a tour operator, after several years of working in the travel industry. He is starting out on a small scale, working from a room in a friend’s office. The friend has agreed to let him have the room rent-free for 6 months in order to get himstarted.

In his first quarter of operations, January–March 2013, Skippy plans two tours, both coach trips to Austria. He advertises the trips in November and December 2012, paying the cost of £3000 out of his own money. He also pays £2000 for a computer. He intends that both of these amounts should constitute his initial capital contribution to the new business. The computer will be depreciated over its estimated useful life of 5 years on the straight-line basis.

The revenue and cost structure of each trip is as follows:

£

The trip will cost £530 per person. The coach carries a maximum of 60 people and Skippy expects an 80% load factor – that is, 48 people. So 48  £530 ¼ sales revenue per trip 25 440 Hotel costs ¼ £42.50 per person per night for 7 nights half board 14 280 Coach travel costs 2 600 Insurance bond 1 500 Notes:

n The first trip is planned for 17 February, and the second for 15 March. The sales revenue from the trips will be received in advance – receipts from trip one will be received in January, and from trip two in February.

n The hotel requires a non-returnable deposit of 50% in advance, with the remainder paid at the end of the stay. Advance payments will be made in January for trip one and in February for trip two.

n The coach costs must also be paid in advance: trip one will be paid for in January and trip two in February. The insurance bond for both trips will be paid in January.

n Other costs are: telephone – the bill for an estimated £360 will be paid in March;

and sundry office costs – £200 paid in cash each month.

Prepare for Skippy:
i) A budget statement of cash flows for the 3 months of January, February and March 2013.
ii) A budget income statement for the 3 months ending 31 March 2013.
iii) A budget statement of financial position at 31 March 2013.