Appendix

Section 1: Abacus Traders - Cash Flow Forecast (June to December 2020)

Month Sales Purchases Wages Mfg. Exp. Office Exp. Selling Exp.
£ £ £ £ £ £ £
June 180,000 110,000 10,000 3,000 3,000 3,000
July 192,000 134,000 10,000 4,500 3,000 4,000
August 198,000 135,000 10,000 4,500 3,500 5,000
September 146,000 105,000 10,000 3 000 2,000 4,000
October 274,000 226,000 10,000 6,000 2,500 3,000
November 140,000 104,000 10,000 3,500 2,000 3,000
December 130,000 103,000 10,000 3,000 2,000 3,000

Additional Information:
(a) Cash in hand on 1st June 2020 was £25,000.
(b) Abacus Traders has taken a loan from bank of £540,000 to acquire two delivery vans. The
bank offered Abacus to design their own repayment plan according to their requirements.
Abacus opted to repay the loan amount by dividing it equally over 36 months.
(c) Abacus rented a new shop in town center on 1st January 2020 for an annual rent of
£96,000. The rent is to be paid in equal quarterly installments. First installment was due
on 1st January 2020
(d) All sales and purchases are made on credit basis
(e) 50% of credit sales are realized in the month following the sale and the remaining 50% in
the second month following.
(f) On 1st June 2020, Abacus Traders received cash for previous sales totally £81,000.
(g) Creditors are paid in the month following the month of purchase
(h) All expenses, including wages, manufacturing expense, office expense and selling
expenses are paid off in the month in which they occur
(i) Abacus Traders have sub-let one of their warehouses in town for an annual rent of
£30,000. The rent will be received by Abacus Traders in two installments, in June and
December respectively.

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Section 2 - Break-even Calculations

The marginal costing of Abacus Traders is as follows; £

Sales (5,000 units at £4 per unit) 20,000

Variable costs (direct materials, direct labour, etc.) 8,000

Contribution 12,000

Fixed cost 7,500

Profit 4,500

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Section 3 – Financial Record for the year 1st January 2020 to 31st December 2020
The company’s trial balance as at 31st December 2020 and further information is shown below.

Abacus Traders Trial Balance as at 31-12-2020 DEBIT CREDIT

£ £

Property 85,000

Equipment 40,000

Depreciation provisions:

Property 6,375

Equipment 23,125

Purchases 688,000

Sales 892,000

Inventory at 01/01/2020 24,500

Discounts allowed 7,500

Discounts received 2,500

Returns outward 2,600

Directors Remuneration 58,500

Trade Payables 58,000

Trade Receivables 85,000

Bank 6,600
Cash in hand 600
Drawings 29,270
Selling, general and administrative expenses 38,500
Interest Expense 0
Long term loan 35,000
Capital 30,670
1,056,870 1,056,870

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The following adjustments need to be taken into account:
1. Inventory at 31/12/2020 is £21,600
2. Directors’ remuneration outstanding (accruals) at 31/12/2020 was £4,100.
3. Selling, general administrative expenses include a prepayment for rates of £1,000
4. Depreciation for the year has still to be provided as follows:
- Property 1.5% per year using the straight-line method
- Equipment 25% per year using the reducing balance method
5. Loan interest of £2,000 is outstanding

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Section 4 – Ratio Analysis
Alpha Supplies is a competitor to Abacus Traders and is known for setting the industry benchmark
for financial health. The following ratios were obtained for Alpha Supplies for the yearended 31st
December 2020.

Alpha Supplies Ratios

Gross Profit margin 55%

Net profit Margin 24%

Return on Capital Employed 15%

Current Ratio 2:1

Acid Test Ratio 1:1

Trade Receivables Turnover 15 days

Trade Payables Turnover 25 days

Inventory Turnover 15 days