Question 3

Ama has been working as a Makola business woman for many years without obtaining finance from a bank. She intends starting another business from her own working capital, using GH300,000. She maintains an account with a Bank with a minimal balance and intends to approach the bank for the necessary additional finance.

She asks you for advice and provides the following additional information.

1. Arrangements have been made to purchase fixed assets costing GH160,000. These will be paid for at the end of September and are expected to have a five year life, at the end of which they will possess a nil residual value.
2. Stocks costing GH100,000 will be acquired on 28^th September and subsequently monthly purchases will be at a level sufficient to replace forecast sales for the month.
3. Forecast monthly sales are GH60,000 for October, GH120,000 for November and December, and GH210,000 from January 2015 onwards.
4. Selling price is fixed at the cost of stocks plus 50%
5. Two months credit will be allowed to customers but one months credit will be received from suppliers of stock.
6. Running expenses, including rent but excluding depreciation of fixed assets are estimated at GH32,000 per month
7. She intends to make monthly cash drawings of GH20,000

You are required to prepare a cash budget the period