Solution 9.10

a) A forecast trading, profit and loss account for the period 1 June to 30 September inclusive

The approach in this question is again to layout the information given in the question sales, stock (opening and closing) and using the gross profit percentages given of 30% one can calculate the gross profit and cost of sales figures. In this question opening and closing stock will be the same (€500) thus cost of sales and purchases will also be the same.

		Forecast Trading, Profit and Loss Account

			JUNE	JULY	AUGUST	SEPT	TOTAL
			€	€	€	€	€
SALES			10,000	10,000	10,000	9,000	39,000

LESS COST OF GDS SOLD
	O/STOCK		500	500	500	500	500
	PURCHASES		7,000	7,000	7,000	6,300	27,300

	C/STOCK		500	500	500	500	500
			7,000	7,000	7,000	6,300	27,300

GROSS PROFIT			3,000	3,000	3,000	2,700	11,700

LESS EXPENSES
	INSURANCE (1900*4/12)					633
	RATES (450*4/12 )					150
	OTHER EXPENSES					3,800
	MORT INTEREST		(100,00012%2/12)		Note 1	2,000
			(100,000-277812%2/12)			1,944	8,527
NET PROFIT							22,673

Note 1: The mortgage interest is based on the amount outstanding on the loan. At 1 June the amount of the loan was €100,000 however this amount was reduced at the beginning of August by €2,778. Thus loan interest is charged for two months based on the amount outstanding of €100,000 and for another 2 months based on the amount outstanding of €97,222.

b) A forecast monthly cash budget for the above period

	Forecast Cash Budget

		JUNE	JULY	AUGUST	SEPT
INCOME		€	€	€	€
CASH SALES		9,000	9,000	9,000	8,100
CREDIT SALES		______	1,000	1,000	1,000
Total income		9,000	10,000	10,000	9,100

EXPENDITURE
PURCHASES			7,000	7,000	7,000
INSURANCE		1,900
OTHER EXPENSES			950	950	950
DRAWINGS		800	800	800	800
MORTGAGE CAPITAL				2,778
MORTGAGE INTEREST Note 1				3,000
RATES				225
		______	______	______	______
Total expenses		2,700	8,750	14,753	8,750
CASH SURPLUS/ DEFICIT		6,300	1,250	(4,753)	350
OPENING BALANCE		10,000	16,300	17,550	12,797
CLOSING BALANCE		16,300	17,550	12,797	13,147

Note 1: Loan interest is paid on a quarterly basis with the next payment date 1 August. Thus the loan interest to be paid will be €100,000 x 3/12 x 12% = €3,000

c) Relevant extracts from the balance sheet as at 30 September

Current Assets

Stock

Debtors

Prepayments

Insurance

Rates

Bank

€

500

900

1,267

150

13,147

Current Liabilities

Trade creditors

Accruals

Other expenses

Loan Interest Note 1

6,300

950

1,944

Long- term Liabilities

Mortgage Loan

97,222

Financed By

Net profit

Less drawings

22,673

(3,200)

Note 1: Loan interest due at the end of September relates to the interest that has been charged to the profit and loss account but not paid by the end of September. The only interest payment made was at the begining of August relating to the May June and July. Thus The interest charged for August and September is outstanding and a current liability. This amounts to €97,222 x 12% x 2/12 = €1944