A Mtoto Ltd operate as wholesale 'cash and carry' stores and in addition to its main store have two other depots. The company's summarised statement of financial position as at 31 August 2014 was as follows.

Non-current assets (at net book value) 549,600 Current assets Inventory 399,900 Trade accounts receivable 420,900 Less Current liabilities Trade (and other) accounts payable 110,500 Bank overdraft Authorised and issued capital 620,000

$450,000 £ 1$ Ordinary shares fully paid 450,000 Retained earnings at 1 Sept 2013 300,000 Less Loss for year ending 31 Aug 2014

- Over the past year the company has experienced increased competition and as a consequence reported a net trading loss for the year ended 31 August 2014.

- The company has decided that in the new financial year tighter control must be exercised over cash resources.

The following information is available:

1 All goods are purchased by the main store.

\section*{Purchases 2014}

\begin{tabular}{cc|cccc}

\multicolumn{2}{c}{ Actual } & & \multicolumn{4}{|c}{ Forecast } \\

July & Aug & Sept & Oct & Nov & Dec \\

$£$ & $£$ & $£$ & $£$ & $£$ & $£$ \\

55,800 & 61,200 & 64,300 & 41,000 & 46,000 & 41,800

\end{tabular}

Mtoto Ltd pays suppliers two months after the month of purchase.

- Forecast purchases are being reduced since the managing director regarded current inventory levels as too high.

- In addition, shop-soiled inventory which cost $£ 20,000$ is to be sold for cash in October. It is anticipated that this inventory will be sold for $£ 17,000$. This sale is not included in the sales of Note 2 below.

2 All sales are on a cash basis only except for several important customers who trade only with Mtoto's main store.

\begin{tabular}{|c|c|c|c|c|c|c|}

\hline & & & & & & \\

\hline & & & & & & \\

\hline & July & Aug & Sept & Oct & Nov & Dec \\

\hline & $£$ & $E$ & $£$ & $£$ & $£$ & $£$ \\

\hline Main store & & & & & & \\

\hline Cash sales & 21,500 & 21,600 & 18,000 & 26,300 & 19,200 & 24,700 \\

\hline Credit sales & 24,000 & 21,000 & 32,500 & 26,000 & 25,400 & 27,800 \\

\hline Depot 1 & 15,500 & 17,400 & 19,700 & 18,000 & 17,600 & 17,900 \\

\hline Depot 2 & 21,000 & 24,000 & 26,300 & 19,700 & 21,000 & 19,100 \\

\hline

\end{tabular}

3 Mtoto Ltd pays $£ 9,500$ fixed overhead costs per month.

4 Wages and salaries are paid each month through a centralised payroll system.
Wages and salaries 2014 \begin{tabular}{c|cccc}
Actual & \multicolumn{5}{|c}{ Forecast } \\
Aug & Sept & Oct & Nov & Dec \\
$£$ & $£$ & $£$ & $£$ & $£$ \\
16,000 & 17,000 & 19,000 & 13,000 & 12,000 \end{tabular}
In October, 10 staff were made redundant and are to receive their redundancy compensation of $£ 12,000$ in December. This amount is not included in the above figures.
5 Other variable overhead charges are paid by Mtoto Ltd in the month following the month they are incurred.
6 Plant surplus to requirement is to be sold in September for $£ 26,500$ cash. The plant cost $£ 55,000$ and depreciation to date is $£ 20,000$.
Required:

(a) A detailed cash budget, on a month by month basis, for the first four months of the financial year ending 31 December 2014 for Mtoto Ltd.

(b) A report commenting on:
(i) the current and forecast liquidity position.
(ii) the action that Mtoto Ltd could take to attempt a return to a profit situation.
(AQA (Associated Examining Board): GCE A-level)