Business Planning

The directors of Silicon Engineering Limited are concerned about the liquidity position of their company over the

next three months. The following information is relevant:

a$.$ Opening balance of cash at bank on $1$ June $2023$ is expected to be $6,500.$

b$.$ Purchases and sales $($in units$)$ are planned as follows:

c$.$ Units are sold for $100$ and are purchased for $60.$

d$.$ Sales are divided as follows: $20\%$ cash sales, $80\%$ credit sales.

e$.$ Debtors normally settle their accounts after two months.

f$.$ All purchases are paid for one month in arrears.

g$.$ Rent is $24,000$ per annum, paid in quarterly instalments in January, April, July and

October.

h$.$ Wages and salaries are expected to be $12,000$ per month.

i$.$ All other costs are estimated to be $3,000$ per month.

j$.$ In June $2023$ a new machine will be purchased for $16,500.$

k$.$ An old machine will be sold for its net book value of $2,700$ in August $2023.$

Required:

$($a$)$ Prepare a cash budget for Silicon Engineering Limited for the three months ending $31$ August $2023.$

$($b$)$ Prepare a projected profit and loss account for the three months ended $31$ August $2023.$

$(10$ marks$)$

Advise the directors on the profitability and liquidity of the company.

$(10$ marks$)$

$(5$ marks$)$

Note: Ignore depreciation.