Assignment -
Golden Horn is a sole trader operating as a wholesaler in the paint industry. She is considering expanding the business and needs to know if future cash flows are sufficient to fund the expansion or whether additional external borrowings wilt be needed in part or in full.
All other Wholesalers in the industry offer retail paint shops extended credit terms.
Golden Horn is required to maintain extensive levels of inventory to satisfy customer demands.
The paint manufacturers offer the wholesalers credit terms.
The premises are rented and located in an industrial estate. The lease agreement has six years to run with an option to renew for an additional six years ensuring a reasonable level of continuity at the same location. The premises are sublet to a business to defray some of the monthly rental costs.
Distribution of the paint to the retail paint shops is outsourced to the local transport company on a needs basis. This relieves him of maintaining his own tracks and associated labour costs.
Golden Horn is registered for GST, reporting quarterly on an Accruals Basis. The GST Payable per the Balance Sheet ac 31 March is payable by 21 April. The GST rate is 10%.
A balance sheet as at 31 March has been produced and provides the opening balances for the period commencing 1 April.
Golden Horn Balance Sheet as at 31 March
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Current Assets
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Accounts Receivable
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$137,808
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Cash at Bank
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$40,000
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Inventory
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$18,200
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$196,008
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Non-Current Assets
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Plant and Equipment (at cost)
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$140,000
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Accumulated Depredation on Plant & Equipment
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$52,000
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$92,000
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Office Equipment (at cost)
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$65,000
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Accumulated Depredation on Office Equipment
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$20,000
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$45,000
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$137,000
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Total Assets
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$329,008
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Current Liabilities
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Trade Creditors
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$45,300
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GST Payable
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$8,000
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Non-Current Liabilities
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5.4% Loan (due in 2 years)
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$110,000
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Total Liabilities
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$163,300
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Net Assets
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$165,708
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Proprietors Equity
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Capital
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$115,200
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Accumulated Profits
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$50,508
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$165,708
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Data and Supporting Information
Sales - Sales (in dollars excluding GST).
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Actual
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January
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$75,000
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February
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78,000
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March
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85,200
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Forecast
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April
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$86,100
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May
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90,500
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June
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87,500
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July
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85,000
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Accounts Receivable (Debtors) -
Current industry experience reveals the Following pattern of debtors' collections.
All sales are on credit and each month's invoices are mailed On the last day of the month of sale. The historical collection pattern is:
- 50% pay within 30 days of invoice date.
- 30% pay between 30 and 60 days of invoice date.
- 20% pay between 60 and 90 days of invoice date.
- 90% of sales are on credit; the remainder arc cash. GST applies to all sales.
Purchases and Accounts Payable -
The only Accounts Payable are for purchases of paint stock. All other expenses are paid in cash.
The markup on cost for paint averages 70%.
Closing inventory for each month should represent 30% of the next month's sales in units (cost of sales).
All purchases for a month are paid for in the month following the purchase. GST applies to all paint purchases.
Rent Revenue -
Golden sublets space in her warehouse to another business. She charges a monthly rent of $500 plus GST which will rise to $530 plus GST in June, The tenant meets all his own power and utility costs; the rental amount includes a portion of the rent and other costs associated with the building.
Operating Expenses -
Administration costs (excluding depreciation and rent) represent 20% of each month's purchases and are paid in cash in the month in which they are incurred. GST applies.
Depreciation is charged to the accounts at the rate of:
Plant and equipment (marketing) - 15% per year on cost.
Office equipment - 12% per year on cost.
Marketing and Distributing costs represents 10% of each month's sales and are paid in the month in which they are incurred. GST applies.
Loan interest is paid at the end of each month at the rate of 5.4% per year. (The mortage is an interest only loan with the principal due next year {Not subject to GST}).
Property rental (commercial) of $4,000 plus GST is paid at the beginning of each month.
As the accountant, you have been instructed to produce budgets that will be the basis for management decisions, and support any borrowing submissions made to financial institutions.
Required: Based on your accounting experience and after discussions with the proprietor it was decided that your brief would be to prepare the following:
Prepare month-by-month budgets for the three months ending 30 June 2016:
(a) Sales budget.
(b) Purchases budget.
(c) Cost of Goods Sold budget.
(d) Expenses budget.
(e) Cash Receipts budget.
(f) Cash Payments budget.
(g) Cash Budget.
(h) GST payable ledger account.
All monetary amounts should be rounded to the nearest dollar.
Attachment:- Assignment File.rar