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a) Prepare a budgeted departmental trading, profit and loss account for the three months ended 31August
This question asks for a departmental trading, profit and loss account. That requires a separate trading account for the bar and restaurant. Unlike other questions you are given the purchases figures however you are not given any information on how to calculate closing stock. Thus closing stock is the balancing figure for each trading account. There is no need to prepare a monthly trading account as the monthly purchases figures are already given. The following are the steps in preparing the trading account
1. Outline the trading account and put in the figures given in the questions – sales, purchases and opening stock.
2. Calculate gross profit and cost of sales. This is done by using the gross profit percentage given in the question. The question expresses gross profit as a percentage of sales thus sales = 100%. For the bar, gross profit = 55% and hence cost of sales = 45%. For the restaurant, gross profit = 60% and thus cost of sales = 40%.
3. The balancing figure in the trading account is the closing stock for both the bar and restaurant.
Note: There is rental income in this question. The rental income earned for the period (3 months) should be added to gross profit. However the question does not tell us the monthly rental. This can be calculated by ascertaining how many months does the rent prepaid in the opening balance sheet represent. If the tenant pays every three months and his last payment before the opening balance sheet date was 1 may. Then the amount of the prepayment represents 2 months. Thus the monthly charge is €1,000 / 2 = €500
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Departmental Trading, Profit and Loss Account |
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Bar |
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Rest |
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Total |
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€ |
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€ |
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€ |
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Sales |
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30,000 |
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90,000 |
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120,000 |
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Less Cost of sales |
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O/stock |
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800 |
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500 |
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1300 |
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Purchases |
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13,400 |
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44,000 |
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57400 |
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14,200 |
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44,500 |
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58700 |
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C/stock |
Balancing figure |
700 |
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8,500 |
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9200 |
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COGS |
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13,500 |
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36,000 |
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49500 |
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G.P. |
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16500 |
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54000 |
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70500 |
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Add rental income |
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1500 |
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72000 |
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Less Expenses |
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Wages |
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34,500 |
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Other Expenses (excluding insurance 20,500-3,000) |
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17,500 |
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Insurance |
(less prepayment of 9 months 3000-2250) |
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750 |
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Depreciation |
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2550 |
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Loan interest |
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1350 |
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56,650 |
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Net Profit |
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15,350 |
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b) Prepare a monthly forecast cash budget for June, July and August
Cash Budget |
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June |
July |
August |
Total |
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€ |
€ |
€ |
€ |
Income |
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Cash Sales |
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29520 |
36000 |
42480 |
108000 |
Cash received from credit sales |
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1000 |
3280 |
4000 |
8280 |
Rental Income received |
_____ |
______ |
1500 |
1500 |
Total income |
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30520 |
39280 |
47980 |
117780 |
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Less Expenditure |
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Purchases |
2230 |
17,000 |
18,400 |
37,630 |
Cash Wages |
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7000 |
8400 |
8750 |
24,150 |
PAYE/PRSI |
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3000 |
3600 |
6,600 |
Expenses |
3000 |
7000 |
7500 |
17,500 |
Insurance |
3000 |
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3,000 |
Loan repayment |
1200 |
1200 |
1200 |
3,600 |
Loan Interest |
450 |
450 |
450 |
1350 |
Preliminary tax |
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10000 |
10000 |
Total expenditure |
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16880 |
37050 |
49900 |
103,830 |
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13640 |
2230 |
-1920 |
13950 |
Opening cash balance |
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2360 |
16000 |
18230 |
2360 |
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Closing cash balance |
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16000 |
18230 |
16310 |
16310 |
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c) Prepare a budgeted balance sheet as at 31 August
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Balance Sheet |
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Fixed Assets |
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Cost |
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Depreciation |
N.B.V. |
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Leaseholds |
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200000 |
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1800 |
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198200 |
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Equipment and Furniture |
50000 |
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750 |
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49250 |
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250,000 |
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2,550 |
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247450 |
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Current Assets |
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Stock |
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9200 |
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Debtors |
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4720 |
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Bank |
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16310 |
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Insurance prepaid |
(9 months prepaid) |
2250 |
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32480 |
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Creditors <12 months |
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Trade Creditors |
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22000 |
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Wages due |
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3750 |
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Rent prepaid |
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1,000 |
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26,750 |
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Creditors >12 months |
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Loan capital |
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39,830 |
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213,350 |
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Financed By |
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Capital |
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150000 |
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Reserves |
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48000 |
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Retained profit |
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15350 |
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213350 |
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Note:
- There were no new fixed assets purchased so the NBV of fixed assets is simply cost less depreciation.
- Debtors represent credit sales in August
- Trade creditors represents August credit purchases
- The rent prepaid is a prepayment on a revenue item and thus is a current liability. In effect the tenant has paid in advance and thus the business owes the tenant the amount of the prepayment. The prepayment represents 2 months rent namely September and October.
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