The managing director of Pumpkin Ltd was reviewing the results of the company for the financial year ended 31 March 19X0. The following summarised information was available:

Note: There were no other accounts with balances. The balances as at 1 April 19X9 had remained unchanged throughout the year.

The managing director was pleased that the company had made a good profit, but he was rather concerned that a healthy bank balance at the beginning of the year had now become a large bank overdraft.
Consequently he asked the company accountant to prepare forecast information for \(19 \mathrm{X} 0 / \mathrm{X} 1\) in order that the cash situation could be improved.
The following information was prepared by the accountant:

Note: The company had successfully negotiated lower prices from its supplier commencing 1 July \(19 \times 0\).
3 Dividends would be paid as follows:
(i) Final ordinary dividend of \(5 \mathrm{p}\) per share payable on 31 May \(19 \times 0\) in respect of financial year \(19 \times 9 / X 0\).
(ii) Interim ordinary dividend of \(2 \mathrm{p}\) per share payable on 31 July 19X0 in respect of financial year 19X0/X1.
4 Selling and distribution expenses are expected to be 6 per cent of a given month's total sales. They are paid one month in arrears.
5 Administration charges would be incurred as follows:

Administration charges are settled two months after the month in which they were incurred.
6 The company had decided to make a bonus issue of shares of one share for every three held. The issue would be made on 30 April \(19 \mathrm{X} 0\). The bonus shares would not qualify for the final dividend of \(19 \times 9 / \mathrm{X} 0\), but would qualify for the interim dividend to be paid on 31 July 19X0.

Required:

(a) Comment on the liquidity of the company as at 31 March \(19 \times 0\) and explain to the managing director why a company can apparently make a good profit but have no cash in the bank.

(b) Prepare a cash budget for each of the four months ending 31 July 19X0.

(c) Comment on the forecast bank balance as shown by your cash budget. Identify ways in which the bank overdraft could be reduced over the last five months of \(19 \mathrm{X} 0\).

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Balances as at 1 April 19X9 Issued ordinary share capital: 1 fully paid shares 150,000 Share premium account 100,000 Balance of retained earnings 40,000 Balances as at 31 March 19X0 Net profit for year 19X9/X0 70,000 Fixed assets 300,000 Bank overdraft 150,000 Other nct current assets 210,000