Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The summarised statement of financial position of Leila Ltd as at 31 May 2020 is as follows: 100071 Current assets Bank 20,000 AR 200,000 Inventory

The summarised statement of financial position of Leila Ltd as at 31 May 2020 is as follows:


100071





Current assets




Bank

20,000



AR

200,000



Inventory

86,000



Total current assets

306,000



NCA [net of depreciation]

154,000



Total assets


460,000


Current liabilities




AP

72,000



Accruals [wages]

3,800



Accruals [expenses]

2,500



Total current liabilities

78,300



Capital and reserves

381,700



Total liabilities and equity


460,000



Accounts payable represent purchases for May, and accounts receivable the sales for April and May at $100,000 per month.

The directors are seeking finance from a bank and have produced the following profit forecast, but the bank, before deciding, has asked for a cash budget for the period showing the maximum anticipated finance needed from month to month. The profit forecast for the next six months is:

100071

Jun

Jul

Aug

Sep

Oct

Nov

Sales

180,000.0

220,000.0

240,000.0

262,000.0

262,000.0

260,000.0

Gross profit

45,000.0

55,000.0

60,000.0

65,500.0

65,500.0

65,000.0

Wages and salaries

20,000.0

18,000.0

24,000.0

27,000.0

32,000.0

24,000.0

Rent

1,670.0

1,670.0

1,660.0

1,670.0

1,670.0

1,660.0

Other expenses

8,000.0

10,000.0

12,000.0

12,000.0

10,000.0

15,000.0

Profit

15,330.0

25,330.0

22,340.0

24,830.0

21,830.0

24,340.0

Stock requirement at month end

90,000.0

80,000.0

120,000.0

100,000.0

112,000.0

170,000.0

Further information is given below:

  1. At each month-end, one-eighth of a month’s wages and salaries, and a quarter of other expenses, would be outstanding.
  2. Rent at the rate of $20,000 per annum is payable quarterly in arrears on 31 August, 30 November, etc.
  3. Assume that one month’s credit will be taken on purchases as previously, and that accounts receivable will continue to take two months’ credit.
  4. New fixed assets (additional) will be delivered in June and must be paid for on 31 August; cost $200,000.
  5. If the bank grants finance, it will continue an existing $50,000 overdraft facility, and give a five-year loan of a fixed amount as soon as necessary to maintain the overdraft within its limit for the whole period under review.

You are required to:

[a] prepare the cash budget for the period of June – November 2020.


[b] prepare a summary statement of financial position as at 30 November 2020.


[c] Calculate current ratios at the beginning and at the end of the period.

Discuss if the change in these ratios could affect the firm’s ability to obtain short-term loans from the bank

Step by Step Solution

3.52 Rating (152 Votes )

There are 3 Steps involved in it

Step: 1

Cash budget for the period of June November 2020 Amount in Answer Cash in the beginning Cash receive... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Advanced Accounting

Authors: Gail Fayerman

1st Canadian Edition

9781118774113, 1118774116, 111803791X, 978-1118037911

More Books

Students also viewed these Accounting questions

Question

What is a dummy variable?

Answered: 1 week ago