1.

CASH BUDGET - JAN 2008#4

4. Mushtaq and Hasan have decided to start their own business, Chatanooga Timber Limited. They
plan to buy timber and sell to builders and other customers.

Mushtaq and Hasan will each invest £10 000 as share capital. There is £20 000 additional capital
in the form of a bank loan.

At the start of month 1, Mushtaq and Hasan will pay:

• £12 500 for premises

• £13 000 for fixtures and fittings with an expected life of 10 years
• £22 000 for stock.

During the next three months purchases of stock are expected to be:

• Month 2 £7 000
• Month 3 £8 400
• Month 4 £10 080

During this period, credit is not available from suppliers.

Sales are expected to be £14 000 for the first month, increasing by 20% every month, as the
business builds up customers. From month 1, Chatanooga Timber Limited will offer credit terms to
customers, to be paid in the month following the sale. Each month 25% of sales are expected to be
on credit.

General expenses are expected to be £4 000 per month, payable during the month incurred.

Mushtaq and Hasan plan to make directors' drawings of £400 each a week.

Assume 4 week& in every month.

Required:

(a) Prepare a cash budget for the first four months of trading.
(10)

(b) Prepare a debtors budget, to show the value of debtors at the end of each month.
(2)

(c) Evaluate whether the expected level of directors' drawings is appropriate for the business
during the first four months of trading.
(4)

(Total 16 marks)
CASH BUDGET - MAY 2010 # 2

2. Lee Ping plans to go into business preparing ready-meals for supermarkets.

Lee Ping must first raise the capital for the business.

• In July 2010 he will open a business bank account, into which he will pay £6 500 of his savings
and £8 500 cash received from an insurance policy.
• In August 2010 he will ask family and friends to buy a total of £15 000 of ordinary shares in
his business.
• In September 2010 he will arrange a bank loan for £20 000.

Required:

(a) Prepare a Capital Budget for the months of July to September 2010.
(4)

In the first week of October 2010, Lee Ping plans to pay for the following:

• 4 machines to produce the meals, at a cost of £2 680 each

• 3 months factory rent at a cost of £995 per month
• furniture at £1 250
• a computer at £595
• a delivery van at £5 000.

He also plans for the first week in October to employ 3 workers, to be employed for 45 hours
per week, at a rate of £5.50 per hour. Workers will be paid at the end of each week.

Additional information:

(i) Production will start in Week 2 of October. The 4 machines will run for 9 hours per day,
5 days per week. Each machine will produce 75 meals per hour.

(ii) Lee Ping will purchase raw materials for the meals on the day of production, at a cost of
£0.32 per meal. All raw materials will be paid for by cash on the day of purchase.

(iii) Meals will be delivered to the supermarkets at the end of the day of production. Delivery
van running costs will be £60 per day.

(iv) The supermarkets will pay Lee Ping £0.76 per meal. All sales to the supermarkets will be
on credit. Revenue from sales will be received as follows:

• 50% one month after the sale

• 50% two months after the sale.

(v) Assume 4 weeks in each month.

(b) Prepare a Cash Budget for the 3 months October to December 2010.
(36)

(c) Evaluate the importance to Lee Ping of drawing up a Cash Budget before starting his
business.
(12)

(Total 52 marks)

Answer space for question 2 is on pages 8 to 14 of the question paper.

3. CASH BUDGET - JAN 2013 #4

4. Kim Seng plans to go into business opening a factory on 1 February 2013, to produce cartons of
soft drink. These will be sold and delivered to retail customers.

Kim Seng has £15 000 of his own money to put into the business. He also has a loan of £15 000
from his mother. The loan is to be repaid at a later date, not yet agreed.

Additional information

1. In the first week of February, Kim Seng plans to pay for the following:
 machinery £12 400
 a delivery vehicle £9 500
 three months rent on the factory at £1 199 per month.

2. Production will start in Week 2 of February. The factory can produce 1 400 cartons per day.

3. Kim Seng will purchase raw materials for the drinks, at the start of each week, at a cost of £0.04
per carton. All material purchases will be paid for in cash on the day of purchase.

4. The water charge for the factory will be £640 per month, paid on the last day of every month.

5. Cartons will be delivered to retail customers on the day of production. Delivery costs are
expected to be £280 per week, payable at the end of each week.

6. All output is sold on the day of production. Retail customers will pay Kim Seng £0.22 per
carton. All sales will be on credit. 70% of retail customers will pay one month after the sale.
The other 30% will pay two months after the sale.

7. Kim Seng will take drawings of £400 per week, starting from 1 February 2013.

8. Assume that the factory will operate five days per week and four weeks per month.

Required :

(a) Prepare a monthly Cash Budget for each of the three months February to April 2013.
(24)

(b) Evaluate the level of drawings that Kim Seng is taking out of the business each month.
(8)

(Total 32 marks)

Answer space for question 4 is on pages 18 to 20 of the question paper.

4. CASH BUDGET- MAY 2015 #4

4 George and Mary run a farm. The business is seasonal, and on 1 July 2015, they
expect to be overdrawn by £4 000. They have been asked to meet the bank manager
to discuss the overdraft. The bank manager has asked George and Mary to bring
a monthly cash budget for the 6 months 1 July 2015 to 31 December 2015 to the
meeting. George and Mary have asked you, their accountant, to draw up the monthly
cash budget.
The following information is available:
• The farm shop is only open in July and August and sells fruit for cash. Sales are
expected to be £80 per day, 7 days a week.
• Expenses of the farm shop are £10 per day.
• The wheat is to be harvested in August and sold to a flour producer for £195
per ton. The harvest is estimated to be 45 tons. The flour producer will pay in
September.
• In August and September, fruit will be sold to supermarkets for £2 500 for each
month. The supermarkets will pay two months after the sale.
• Vegetables will be harvested and sold in September, October and November, for
£900 each month, to a factory. The factory will pay one month after the sale.
• In November and December, animals will be taken to the market and sold for
cash, for £130 per animal. Each month, 5 animals will be sold at the market.
• In July, August and September, a farm worker will be employed and paid £175 per
week.
• Feed and fertiliser £235 per month
• Power and fuel £175 per month
• Depreciation £150 per month
• Other fixed costs £25 per week
• Drawings for George and Mary will be £180 each per week.
• Assume 4 weeks in a month.
Required:
(a) Prepare a monthly cash budget for the farm, for each month of the 6 month
period 1 July 2015 to 31 December 2015.
(24)
At the meeting, the bank manager recommends a 6 month bank loan for George and
Mary from 1 July 2015 for £6 000.
Required:
(b) Evaluate the Bank Manager’s recommendation.
(8)

(Total for Question 4 = 32 marks)

Answer space for question 4 is on pages 24 to 26 of the question paper.

 5. CASH BUDGET - MAY2016 #1

1 Chong and Mei are starting Lantau Insurance Agency Limited, which will sell
insurance policies.
The new company is to be funded with a capital of £90 000 in the following ways:
• Friends and family of Chong and Mei will buy shares in the company for 30% of
the capital required
• 40% of the capital required will be raised as a bank loan
• The remainder of the capital will be invested equally by Chong and Mei. This is to
be raised in the following ratio:
two thirds shares purchased : one third personal loan.
Required:
(a) Prepare a Capital Budget for the start of the business.
(4)
The terms of the insurance policies sold mean the customer will pay a £30 premium
on the date of the sale, then pay a monthly premium of £30 on the same date of
each and every following month for the remainder of the policy. All policies have
a minimum length of one year. The first three months of premiums collected are
retained by Lantau Insurance Agency Limited as an introduction fee.
Chong and Mei are considering two options as business models on how to set up and
run the company. Initial costs to set up the business will be £30 000, regardless of the
option chosen. This is in addition to the costs shown below.
The two options are:
Option 1:
Operate the business from shop premises in the town centre.
Costs will be:
• Payment for lease on shop premises £10 000
• Purchase of furniture for shop £4 000
• Purchase of computers for shop £2 500
• Rent of shop premises £500 per month
• All other expenses total £1 800 per month.
Staff will receive basic pay, but will not be paid commission. Basic pay will be at a rate
of £1 000 per month per employee. Six staff will be employed and each staff member
will sell eight insurance policies per month.
Option 2:
Operate the business from an office on the edge of town.
Costs will be:
• Purchase of furniture for office £3 000
• Purchase of computers for office £2 000
• Rent of office premises £400 per month
• All other expenses total £1 600 per month.
Staff will receive basic pay and will also be paid a commission. Basic pay will be at a
rate of £500 per month per employee. Staff will find and visit potential customers to
sell insurance policies. Commission will be paid to staff at a rate of 25% of premiums
paid by customers each month, for the first six months of the policy. Eight sales staff
will be employed and each staff member will sell 12 insurance policies per month.
Required:
(b) Prepare a monthly Cash Budget for Lantau Insurance Agency Limited for each of
the first three months of trading for
(i) Option 1
(17)
(ii) Option 2.
(19)
(c) Evaluate the two possible options on behalf of Lantau Insurance Agency Limited.
(12)

(Total for Question 1 = 52 marks)

Answer space for Question 1 is on pages 2 to 8 of the question paper.