Urgent - Question


B

bg14

Hello everyone,

I have financial accounting as one of the modules and I have got this
particular exercise to solve. I would be hightly grateful if any one
could respond to my query.

Question;




For the past few years, Adam has been employed as a procurement agent
in the
building and designing department of a large DIY centre. He has mainly
been responsible
for the purchasing of wood, tiles and plants required by customers for
using in their
newly decorated homes, but in the busy season he has also helped in
caring for the house
plants in the greenhouses.

He now believes that he is ready to set up his own business, selling
fitted wooden tiles.
He proposes to commence trading in January 20X and has had a meeting
with his bank
manager to discuss his plans. The bank manager has requested that Adam
produces a cash
flow forecast covering the first twelve months of trading so that the
cash requirements for
that period can be identified. As Adam does not have any previous
experience in dealing
with financial information, he has approached your company for help.
In the business
plan to be presented to the bank manager, Adam wishes to include a
cash flow forecast, the
corresponding profit and loss account and balance sheet for the first
twelve months of the
business.

After contacting several suppliers, Adam estimates that the wooden
tiles will cost him
about £2 each for the first year, rising to £3.50 in his second year
of trading. He intends
to buy 1,000 tiles immediately. For accounting purposes, any tiles
sold during a month
will be considered to be replaced on the first day of the following
month. He is currently
unable to get any credit facility from his intended supplier, so he
will have to pay for his
wooden tiles as he replaces them.

Sand paper and varnish will be purchased from a company which supplies
these items in
batches costing £2,500 per batch. Each batch is sufficient for potting
up to 5,000 tiles.
The company will allow Peter two month's credit on his purchases from
them. Each tile
sold will require some sanding and varnishing before delivered to the
customer.

In addition, each tile sold will also have to be sprayed with a
fungicide, which will be
purchased in batches. It is estimated that each batch of fungicide
will cost £300, which
will be sufficient to spray 1,000 tiles. This will be paid for in the
month following that in
which the purchase was made.

Adam has seen a small shop in town with a large backyard, which he
believes would be
ideal for his business. The shop premises are available for renting at
a rate of £200 per
month, payable in advance. He will also have to pay business rates on
the premises which
are expected to amount to £1,500 per year. This is payable in two
equal installments on 1
April and 1 October. An assistant will be employed to help Adam in the
business and will
be paid at a rate of £5 per hour for a 40-hour week, for 52 weeks a
year.











Electricity and heating costs are expected to amount to £1,800 per
year. The bills will be
received quarterly and are expected to be as follows: March £600; June
£300; September
£400; December £500. Adam intends to pay the bills in the month in
which they are
received.
To ensure that potential customers know about the new business, Adam
proposes to
advertise in the local newspapers and on local radio. The cost of
advertising is expected
to amount to approximately £1,000 a year, payable in January.
Adam has decided that he will require a motor vehicle for the business
and has seen a
second-hand van for sale at a local car dealer at a price of £3,000.
The van would have to
be paid for in full in February and it is expected to have a useful
life of five years. A
storage area is required to house the tiles before they are sold, and
it is estimated that this
will cost approximately £1,000, payable in January. The storage area
is expected to last
for ten years.
Adam has no other sources of income and estimates that he will need to
make drawings
from the business of £400 per month for his private living expenses.
Based on his previous experience whilst working at the DIY centre, he
estimates that his
wooden house tiles will sell for approximately £6.50 cash each for the
first six months,
rising to £7.00 for the remaining period. The sales pattern (in number
of tiles) in his first
year is expected to be:

Based on his previous experience whilst working at the DIY centre, he
estimates that his
wooden house tiles will sell for approximately £6.50 cash each for the
first six months,
rising to £7.00 for the remaining period. The sales pattern (in number
of tiles) in his first
year is expected to be:
January 300 July 1,000
February 400 August 600
March 600 September 400
April 1,000 October 400
May 1,200 November 300
June 1,300 December 600


prepare a cash flow forecast for the first twelve months of the
proposed new business, i.e. the year to 31 December 20X.
2. Produce the corresponding forecast profit and loss account and
balance sheet for
the business to 31 December 20X.
 
Ad

Advertisements

R

Ronald Raygun

bg14 said:
Hello everyone,

I have financial accounting as one of the modules and I have got this
particular exercise to solve.
So why not just get on and solve it?
I would be hightly grateful if any one could respond to my query.
What exactly is your query? The exercise question is pretty
straightforward. Obviously you wouldn't expect us just to provide
a complete answer, so there is presumably some specific issue you
are having difficulty with. What is it? If you don't understand
the question at all, then, frankly, you should deselect this module
and do an easier one instead. Flower arranging, perhaps.

Why did Adam suddenly become Peter for a bit?
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top