Richard Toms has agreed to purchase the business of Norman Soul with effect from 1 August 2013. Soul's budgeted working capital at 1 August 2013 is as follows:

\begin{tabular}{lccc}

Current assets & $£$ & $£$ & $£$ \\

Inventory at cost & 13,000 & & \\

Accounts receivable & $\underline{25,000}$ & & \\

Current liabilities & & 38,000 & \\

Accounts payable & 10,000 & & \\

Bank overdraft & $\underline{20,000}$ & & \\

& & $\underline{(30,000})$ & 8,000

\end{tabular}

In addition to paying Soul for the acquisition of the business, Toms intends to improve the liquidity position of the business by introducing $£ 10,000$ capital on 1 August 2013. He has also negotiated a bank overdraft limit of $£ 15,000$. It is probable that $10 \%$ of Soul's debtors will in fact be bad debts and that the remaining debtors will settle their accounts during August subject to a cash discount of $10 \%$. The opening accounts payable are to be paid during August. The sales for the first four months of Toms's ownership of the business are expected to be as follows: August $£ 24,000$, September $£ 30,000$, October $£ 30,000$ and November $£ 36,000$. All sales will be on credit and debtors will receive a two-month credit period. Gross profit will be at a standard rate of $25 \%$ of selling price. In addition, in order to further improve the bank position and to reduce his opening inventory, Toms intends to sell on 1 August 2013 at cost price $£ 8,000$ of inventory for cash. In order to operate within the overdraft limit Toms intends to control inventory levels and to organise his purchases to achieve a monthly rate of inventory turnover of 3 . He will receive one month's credit from his suppliers.

General cash expenses are expected to be $£ 700$ per month.

\section*{Required: $\square$}

(a) An inventory budget for the four months ending 30 November 2013 showing clearly the inventory held at the end of each month.

(b) A cash budget for the four months ending 30 November 2013 showing clearly the bank balance at the end of each month.

(AQA (Associated Examining Board): GCE A-level)