M. Lamb is going to set up a new business on 1 April 20X5. She estimates that her first six months in business will be as follows:

(i) She will put £60,000 into a bank account for the business on 1 April 20X5.

(ii) On 1 April 20X5, she will buy machinery for £8,000, a motor van for £6,400 and premises for £35,000, paying for them immediately out of the business bank account.

(iii) All purchases will be on credit. She will buy £10,000 of goods on 1 April and will pay for these in May. She will purchase another £12,000 of goods in April and £16,000 of goods each month during May, June, July, August, and September. Other than the first £10,000 purchase in April, all other purchases will be paid for two months after purchase.

(iv) Sales (all on credit) will be £26,000 for April and £28,000 for each month after that. Debtors will pay for the goods in the second month after purchase.

(v) Stock on 30 September 20X5 will be £8,000.

(vi) Wages and salaries will be £2,100 per month and will be paid on the last day of each month.

(vii) General expenses will be £200 per month, payable in the month following that in which they were incurred.

(viii) She has an endowment assurance policy maturing on 15 July 20X5. She will receive £17,500 on that date and it will be paid into the business bank account immediately.

(ix) Insurance covering the 12 months to 31 March 20X6 will be paid by cheque on 30 September 20X5, £560.

(x) Business rates will be paid as follows: for the three months to 30 June 20X5 by cheque on 31 May 20X5: for the 12 months ended 30 June 20X6 by cheque on 31 October 20X5. Business rates are £1,440 per annum.

(xi) She will make drawings of £1,800 per month by cheque.

(xii) She has substantial investments in public companies. Her bank manager will give her any overdraft that she may require.

(xiii) Depreciate premises 5 per cent per annum, van 25 per cent per annum, and machinery 20 per cent per annum, all using the straight line method.

You are required to:

(a) Draft a cash budget (includes bank) month by month showing clearly the amount of bank balance or overdraft at the end of each month.

(b) Draft the projected trading and profit and loss account for the first six months’ trading, and a balance sheet as at 30 September 20X5.