a) The following presents forecasted cash flow for Upendo Company Ltd for the period

April 2018 to December 2018

Month Sales Purchases
Shs Shs Shs
April 150,000 100,000
May 160,000 110,000
June 160,000 90,000
July 170,000 90,000
August 200,000 80,000
September 200,000 130,000
October 180,000 140,000
November 180,000 60,000
December 200,000 60,000
The following additional information is available
a) Cash in hand at the end of May 2018 will be Sh. 180,000
b) 50% of the sales proceeds are received in the current month, 30% in the following
month and the balance is received two months after sale
c) Supplies are paid one month after delivery of goods.
d) Corporation tax for 2017 amounting to Sh. 30,000 will be paid on 30th September
2018
e) Contractor’s retention monies amounting to Sh. 50,000 will be paid on 30th June,
2018
f) The shareholders at their general meeting increased the share capital by Sh. 90,000
and the first call of Sh. 50,000 will be received in October 2018
g) In October 2016, the company is due to receive Sh. 20,000 as compensation for a
civil suit
h) The monthly administration expenses amounting to Sh. 33,000 include factory
depreciation charge of Sh. 4000 and preliminary expenses of Sh. 3000
i) Office equipment worth Sh. 15,000 will be paid for in November 2018
Required;
Prepare a cash budget for the period 1st June 2018 to 31st December 2018 (7marks)
b) Highlight the advantages and disadvantages of debentures (6 mks)
c) Distinguish between financial gearing and operational gearing (4 mks)
d) Distinguish between Equity shares and preference shares (3 mks)