Davis Travel Ltd specialises in the provision of cheap weekend winter breaks but also organises cheap weekend summer breaks. You are given the following information:

Its sales estimates for the next six months are:

1. Weekend breaks sell for £300 each. Ten per cent is payable when the holiday is booked and the remainder after two months.

2. Travel agents are paid a commission of 10 per cent of the price of the holiday break one month after the booking is made.

3. The cost of a flight is £50 per holiday and that of a hotel £100 per holiday. Flights and hotels must be paid for in the month when the holiday breaks are taken.

4. Other variable costs are £20 per holiday and are paid in the month of the holiday break.

5. Administration costs, including depreciation of non-current assets of £42,000, amount to £402,000 for the six months. Administration costs can be spread evenly over the period.

6. Loan interest of £10,000 is payable on 31 March Year 5 and a loan repayment of £20,000 is due on that date. For your calculations, ignore any interest on the overdraft.

7. The trade payables of £180,000 at 30 September are to be paid in October.

8. A payment of £50,000 for non-current assets is to be made in March Year 5.

9. The airline and the hotel chain base their charges on Davis Travel’s forecast requirements and hold capacity to meet those requirements. If Davis is unable to fill this reserved capacity, a charge of 50 per cent of those published above is made.

Required:

(a) Prepare:

(i) A projected cash flow statement for the six months to 31 March Year 5.

(ii) A projected income statement for the six months ending on that date.

(iii) A projected statement of financial position at 31 March Year 5.

(b) Discuss the main financial problems confronting Davis Travel Ltd. Ignore taxation in your calculations.

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Statement of financial position as at 30 September Year 4 £000 ASSETS Non-current assets Property, plant and equipment Current assets Cash Total assets EQUITY AND LIABILITIES Equity Share capital Retained earnings Non-current liabilities Borrowings - loans Current liabilities Trade payables Total equity and liabilities 560 30 590 100 200 300 110 180 590