Stokeypokey Wholesalers Ltd is proposing to set up a branch in Northern Ireland. Experience elsewhere suggests that sales will start off at £100,000 a month in January, and then increase by

£100,000 a month until reaching £400,000 in April. Then sales will increase by £80,000 a month until they reach £640,000 in July. In August sales are expected to reach £700,000 a month and remain at that level until the end of the year. Customers are expected to pay two months after the sales are made.

The cost of purchases is 80 per cent of the sales figure, and they are paid for in the month following the purchase. In January purchases will amount to £240,000; then, each month they purchase the amount of goods required for the following month.

Rent of £100,000 per quarter is payable at the beginning of January, and then in March, June, September and December. Other expenses, payable in the month that they are incurred, are expected to amount to £10,000 per month for the first four months; they will increase to £15,000 a month in May, and then to £16,000 a month in August–December.
The only capital expenditure is for purchase of fittings, with £50,000 payable in January and £50,000 in September.
Depreciation is at 10 per cent per annum, with a full year’s depreciation being charged in the first year.

The Northern Ireland branch starts business with an interest-free loan of £1 million from Stokeypokey Wholesalers, which is put into a separate bank account.

a Prepare a summarized income statement for the first year of business.

b Prepare a statement of financial position as at the end of the first year.

c Prepare a cash budget showing receipts and payments for each month for the year.

d Comment on the results, highlighting key learning points.