Davis Travel Ltd specialises in the provision of winter sports holidays but it also organises outdoor activity holidays in the summer. You are given the following information:

Abbreviated statement of financial position (balance sheet)

as at 30 September 2008

£000 Non-current assets 560 Current assets Cash 30 Total assets 590 Equity Share capital 100 Retained earnings 200 300 Non-current liabilities Borrowings – loans 110 Current liabilities Trade payables 180 Total equity and liabilities 590 Its sales estimates for the next six months are:

Number of Number of Promotion bookings holidays expenditure received taken (£000)

October 1,000 100 November 3,000 150 December 3,000 1,000 150 January 3,000 4,000 50 February 3,000 March 2,000 Total 10,000 10,000 450 1 Holidays 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 one month after the booking is made.

3 The cost of a flight is £50 per holiday and a hotel £100 per holiday. Flights and hotels must be paid for in the month when the holidays are taken.
4 Other variable costs are £20 per holiday and are paid in the month of the holiday.
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 2009 and a loan repayment of £20,000 is due on that date. For your calculations you should ignore any interest on the overdraft.
7 The 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 2009.
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 2009.
(ii) A projected income statement for the six months ended on that date.
(iii) A projected statement of financial position (balance sheet) at 31 March 2009.

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