D Smith is to open a retail shop on 1 January 20X4. He will put in £25,000 cash as capital. His plans are as follows (i ) On 1 January 20X4 to buy and pay for premises £20,000, shop fixtures £3,000, motor van £1,000.

(ii ) To employ two assistants, each to get a salary of £130 per month, to be paid at the end of each month. (PAYE tax, National Insurance contributions, etc. are to be ignored.)

(iii ) To buy the following goods (shown in units):

Jan Feb Mar Apr May Jun Units 200 220 280 350 400 330

(iv) To sell the following number of units:

Jan Feb Mar Apr May Jun Units 120 180 240 300 390 420

(v) Units will be sold for £10 each. One-third of the sales are for cash, the other two-thirds being on credit. These latter customers are expected to pay their accounts in the second month following that in which they received the goods.

(vi) The units will cost £6 each for January to April inclusive, and £7 each thereafter.

Creditors will be paid in the month following purchase. (Value stock in trade on the FIFO basis.)

(vii ) The other expenses of the shop will be £150 per month payable in the month following that in which they were incurred.

(viii ) Part of the premises will be sublet as an office at a rent of £600 per annum. This is paid in equal instalments in March, June, September and December.

(ix) Smith’s cash drawings will amount to £250 per month.

(x) Depreciation is to be provided on shop fixtures at 10 per cent per annum and on the motor van at 20 per cent per annum.

You are required to:

(a) Draw up a cash budget for the six months ended 30 June 20X4, showing the balance of cash at the end of each month.

(b) Draw up a forecast trading and profit and loss account for the six months ended 30 June 20X4 and a balance sheet as at that date.