QUESTION 2

ABC Limited one of the retails honey-based products to traders in United States. The company has approached its Bankers to provide funding for next years operations and three months master budget has been requested for review by the bankers.

You have been approached by the management as a consultant to prepare the 1st quarter budget for the bankers consideration for its next years operations. Companys Accounting year ends on 30th April 2021.

Total ($)

Sales recorded in April 2021

200,000

Closing Inventory at 30th April 2021

10,000

Furniture and Fittings at cost

349,000

Provision for depreciation on furniture and fittings

49,000

Trade Payables

24,000

Operating expenses incurred in April 2021

30,000

Accumulated Retained Earnings at 30th April 2021

60,000

Trade Receivables

11,500

Cash at Bank at 30th April 2021

27,500

Additional information:-

Trade payables value for the next 3mths are expected to be as follows:

May $25,000;

June $23,000 and

July $26,000

Operating expenses is expected to increase by 10% from that of April 2021 and this is projected to increase at the same growth rate up to July 2021.

Sales is projected to grow by 15% every month from Apr sales.

The trade receivables figure is desired to be proportional to the sales values.

Depreciation is provided at the rate of 5% per annum using reducing balance method of non-current assets.

Closing inventory is expected to increase by $1,000 in May from Apr levels. This is expected to increase by the same figure in June from the projected figure in May. It is expected that in July closing inventory is desired to be $13,000

The company makes a profit of 25% on its sales (GPM).

REQUIRED:

As a consultant for ABC Limited, report for their Bankers, budgeted statements below, for each individual months May, June and July:-

a) The Budgeted Statement of Comprehensive Income (8 marks)

b) The Budgeted Statement of Financial Position (9 marks)

c) The Cash Budget (4 marks)

Discuss TWO (2) advantages and TWO (2) limitations of Budgetary Control Systems. (4 marks)

(TOTAL: 25 marks)