Nov 2015 Q2

Brofre limited retails fertilizer to farmers in Ghana. The company has approached its Bankers to provide funding for next year’s operations and three months 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 2014
                                                                                                    GHS
Debtors                                                                                     23,000
Bank balance                                                                            55,000
Fixed 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 2014                                 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 GHS 2000 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 GHS 26,000
iii) The company makes a profit of 25% on its sales.
iv) Operating expenses is expected to increase by 10% from that of December and this is projected to increase at the same growth rate to March.
v) Sales is 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 – GHS 50,000; February – GHS 46,000 and in March – GHS 52,000

You are required as a consultant for Brofre Company limited to prepare for their Bankers:
a) The budgeted income statement for the three months.                                                                                            (7 marks)

b) The budgeted statement of financial Position for the three months.                                                                       (7 marks)

c) The cash budget for the three months.                                                                                                                     (6 marks)