- 15 Marks
MA – L2 – Q16 – Budgetary control
Prepare a budgeted profit or loss statement for Kofi Limited for Q1, focusing on sales, inventory, and expenses.
Question
Kofi Limited retails fertilizer to farmers in Ghana. The company has approached its Bankers to provide funding for next year’s operations and a three-month master budget has been requested for review by the bankers.
You have been approached by the management as a consultant to prepare the 1st quarter budget for the banker’s consideration for its next year’s operations.
End of Accounting year December 20X9
| GH¢ | |
|---|---|
| Debtors | 23,000 |
| Bank balance | 55,000 |
| Non-current asset at cost | 698,000 |
| Provision for depreciation balance | 98,000 |
| Creditors Balance | 48,000 |
| Operating expenses for the month December | 60,000 |
| Sales for the month of December 20X9 | 400,000 |
| December Ending inventory | 20,000 |
| Retained earnings | 120,000 |
The following additional information was also provided to assist your work:
(i) Depreciation is provided at the rate of 5% on cost of non-current assets.
(ii) Closing inventory is expected to increase by GH¢2,000 in January from December levels. This is expected to increase by the same figure in February from the projected figure in January. It is expected that in March closing inventory is desired to be GH¢26,000.
(iii) The company makes a profit of 25% on its sales.
(iv) Operating expenses are expected to increase by 10% from that of December, and this is projected to increase at the same growth rate to March.
(v) Sales are projected to grow by 15% from December until March.
(vi) The Debtors figure is desired to be proportional to the sales values.
(vii) Creditors value for the three months are expected to be as follows: January – GH¢50,000; February – GH¢46,000; and in March – GH¢52,000.
You are required as a consultant for Kofi Company Limited to prepare for their Bankers:
(a) The budgeted statement of profit or loss for the three months.
(b) The budgeted statement of financial position for the three months.
(c) The cash budget for the three months.
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