13.7 The balance sheet of Harris Ltd as at 30 November 1993 is shown below:

You are informed that:
(i) The firm’s anticipated sales and purchases for the next six months are:
£000 £000 December 410 205 January 290 224 February 364 236 March 392 249 April 440 273 May 484 293 (ii) Customers are allowed one month’s credit and Harris Ltd takes a similar period of credit from suppliers. (You may assume that these terms and conditions are strictly adhered to.)
(iii) Expense creditors will be paid during December.
(iv) Overheads for the next six months are estimated at £71,000 per month. This figure includes £14,000 depreciation and £43,000 in respect of wages and salaries.
Payments will be made during the month in which the expense is incurred.
(v) The firm experts to purchase some new capital equipment during late May. The cost of the equipment will be £360,000 and be paid for during the months of purchase.
(vi) The accountant of Harris Ltd had negotiated a loan of £350,000 from the firm’s bank to be paid during late May to cover the cost of new capital equipment.
(vii) The firm expects to sell its stock at a mark-up of 100 per cent.

(a) Prepare a cash budget for Harris Ltd in respect of the six months ending 31 May 1994. (8 marks)

(b) Advise the firm’s accountant whether there is a need for a loan to cover the purchase of the new capital equipment. (3 marks)

(c) Calculate Harris Ltd’s net profit or net loss for the six months ending 31 May 1994.
(7 marks)
(ICSA, December 1993)

Transcribed Image Text:

000 000 Fixed assets 775 Share capital 800 Stock 240 Reserves 318