Took comes to see you in March 2016. He is full of enthusiasm for a new product
Question:
Took comes to see you in March 2016. He is full of enthusiasm for a new product that he is about to launch on to the market. Unfortunately his financial recklessness in the past has led him into being bankrupt twice, and he has only just been discharged by the court from his second bankruptcy.
‘Look here, laddie,’ he says, ‘with my new idea I’ll be a wealthy man before Christmas.’
‘Calm down,’ you say, ‘and tell me all about it.’
Took’s plans as far as cash is concerned for the next six months are:
(a) Present cash balance (including bank) £200.
(b) Legacy under a will – being received on 1 April, 2016, £10,000. This will be paid into the business bank account by Took.
(c) Receipts from debtors will be: April £800; May £8,000; June £16,000; July £24,000; August £18,000; September £10,000.
(d) Payments will be: April £200; May £10,000; June £22,000; July £40,000; August £24,000; September £14,000.
You are required:
(a) To draw up a cash budget, showing the balances each month, for the six months to 30 September 2016.
(b) The only person Took could borrow money from would charge interest at the rate of 70% per annum. This is not excessive considering Took’s past record. Advise Took.
Step by Step Answer:
Frank Woods Business Accounting Volume 2
ISBN: 9781292085050
13th Edition
Authors: Frank Wood, Alan Sangster