QUESTION 4 John & Sarah Knight will commence trading in February 2021 with Capital of 60,000. They will spend 150,000 on equipment, They have arranged a loan of 120,000 with interest at 12% p.a. over five years. Repayments of capital and interest are 2,433 each month. The loan interest for the period included in the repayments is 2,367. Sales are expected to be as follows: March: 120,000; April: 120,000; May: 150,000; June: 175,000; July: 175,000 40% of sales are for cash and attract a discount of 5%. The remainder of sales is on credit terms and collected 1 month later. Opening inventory of 60,000 is paid for in March 2021, further inventory is purchased at 45% of sales each month. Suppliers are paid one month in arrears. Closing inventory should also be 60,000 Wages are forecasted to be 10,000 per month, payable in the month they are incurred. Overheads (excluding depreciation) are forecast to be 12,500 per month and paid in the month they are incurred. Rent is 24,000 per year payable quarterly in advance. Equipment will be depreciated at 10% of cost per year. Required: a) b) Forecast monthly cash flow statement for the 3 months to 30th April 2021. (20 marks) What is the impact of giving 90 days credit to the cash flow and to the annual profit? (10 marks) Total: 30 marks QUESTION 4 John & Sarah Knight will commence trading in February 2021 with Capital of 60,000. They will spend 150,000 on equipment, They have arranged a loan of 120,000 with interest at 12% p.a. over five years. Repayments of capital and interest are 2,433 each month. The loan interest for the period included in the repayments is 2,367. Sales are expected to be as follows: March: 120,000; April: 120,000; May: 150,000; June: 175,000; July: 175,000 40% of sales are for cash and attract a discount of 5%. The remainder of sales is on credit terms and collected 1 month later. Opening inventory of 60,000 is paid for in March 2021, further inventory is purchased at 45% of sales each month. Suppliers are paid one month in arrears. Closing inventory should also be 60,000 Wages are forecasted to be 10,000 per month, payable in the month they are incurred. Overheads (excluding depreciation) are forecast to be 12,500 per month and paid in the month they are incurred. Rent is 24,000 per year payable quarterly in advance. Equipment will be depreciated at 10% of cost per year. Required: a) b) Forecast monthly cash flow statement for the 3 months to 30th April 2021. (20 marks) What is the impact of giving 90 days credit to the cash flow and to the annual profit? (10 marks) Total: 30 marks