4. Tech World is to be incorporated on 1 June. The opening statement of financial position (balance sheet) of the business will then be as follows: Assets Cash at bank 60,000 Share capital 1 ordinary shares 60,000 During June, the business intends to make payments of 40,000 for a leasehold property, 10,000 for equipment and 6,000 for a motor vehicle. The business will also purchase initial trading inventories costing 12,000 on credit. Part of these purchases will be made by taking a loan, so that cash at bank balance at the end of June is at least $10,000. The company's bank lends amounts in multiples of thousands only. The business has produced the following estimates: Sales revenue for June will be 8,000 and will increase at the rate of 3,000 a month until September. In October, sales revenue will increase to 22,000 and in subsequent months will be maintained at this figure. ii. The gross profit percentage on goods sold will be 25 per cent. iii. There is a risk that supplies of trading inventories will be interrupted towards the end of the accounting year. The business therefore intends to build up its initial level of inventories (12,000) by purchasing 1,000 of inventories each month after June, in addition to the initial level. All purchases of inventories (including the initial inventories) will be on one month's credit. iv. Sales revenue will be divided equally between cash and credit sales. Credit customers are expected to pay one-half of what they owe in the month after sale, and the remaining balance will be paid two months after the sale is agreed. v. Wages and salaries will be 900 a month. Other overheads will be 500 a month for the I o PI 9 will be on one month's credit. (ciuwing we mnitial inventories) iv. Sales revenue will be divided equally between cash and credit sales. Credit customers are expected to pay one-half of what they owe in the month after sale, and the remaining balance will be paid two months after the sale is agreed. V. Wages and salaries will be 900 a month. Other overheads will be 500 a month for the first four months and 650 thereafter. Both types of expense will be payable when incurred. vi. 80 per cent of sales revenue will be generated by salespeople who will receive 5 per cent commission on sales revenue. The commission is payable one month after the sale is agreed. vii. The business intends to purchase further equipment in November for 7,000 cash. viii. Depreciation will be provided at the rate of 5 per cent a year on property and 20 per cent a year on equipment. (Depreciation has not been included in the overheads mentioned in v. above.) Required: a. Prepare a cash budget for Tech World Ltd for the three-month period to 31 August. b. State, from your answer above, if the company will be able to make the repayment of the loan in August, together with 10% interest payment, if it wants to maintain a positive cash balance. [10+2] Suggested time: 25 mins Page 2 of 4