Choice Designs Ltd operates a small group of wholesale/retail carpet stores in the north of England.

The statement of financial position (balance sheet) of the business as at 31 May 2008 is as follows:

Statement of financial position as at 31 May 2008

£000 £000 Non-current assets Premises 600 Accumulated depreciation (100) 500 Fixtures and fittings 140 Accumulated depreciation (80) 60 560 Current assets Inventory 240 Trade receivables 220 Bank 165 625 Total assets 1,185 Equity

£1 ordinary shares 500 Retained earnings 251 751 Current liabilities Trade payables 268 Tax due 166 434 Total equity and liabilities 1,185 As a result of falling profits the directors of the business would like to completely refurbish each store during June 2008 at a total cost of £300,000. However, before making such a large capital expenditure commitment, they require projections of performance and position for the forthcoming year.
The following information is available concerning the year to 31 May 2009:
l The forecast sales for the year are £1,400,000 and the gross profit is expected to be 30 per cent of sales. Eighty per cent of all sales are on credit. At present the average credit period is six weeks but it is likely that this will change to eight weeks in the forthcoming year.
l At the year end inventories are expected to be 25 per cent higher than at the beginning of the year.
l During the year the directors intend to pay £40,000 for a fleet of delivery vans.
l Administration expenses for the year are expected to be £225,000 (including £12,000 for depreciation of premises and £38,000 depreciation of fixtures and fittings). Selling expenses are expected to be £85,000 (including £10,000 for depreciation of motor vans).
l All purchases are on credit. It has been estimated that the average credit period taken will be 12 weeks during the forthcoming year.
l Tax for the year is expected to be £34,000. Half of this will be paid during the year and the remaining half will be outstanding at the year end.
l Dividends proposed and paid for the year are expected to be 6.0p per share.
All workings should be made to the nearest £000.
Required:

(a) Prepare a projected income statement for the year ended 31 May 2009.

(b) Prepare a projected statement of financial position (balance sheet) as at 31 May 2009.