1. You are the co-founder of ABC Medical Devices, a medical device company that has been...

 

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1. You are the co-founder of ABC Medical Devices, a medical device company that has been trading for the past three years. You have now made the decision to seek external investment into the company to expand to overseas markets. As part of the due diligence process, potential investors have asked you to prepare a cash flow statement for the first quarter of 2018. Your records show that ABC Medical Devices will have the following balances on the 1 January 2018: Bank overdraft Debtors Creditors In addition, you anticipate the following transactions during the next three months: 1. New bank loan of €200,000 to cover present overdraft on the 1 January 2018 to be repaid €40,000 every quarter starting 31 March 2018. i. Debtors and creditors must be cleared within the month. ill. Sales and purchases on one month's credit as follows: Sales Purchases €300,000 €100,000 €380,000 €130,000 €490,000 €170,000 d) January February March Required: a) €200,000 €180,000 €50,000 Iv. Payroll costs of €50,000 in January, rising to €60,000 in February and March. v. Internal research and development (R&D) costs as follows: January February March €100,000 €110,000 €150,000 vi. New patent filing costs of €5,000 in March 2018, with ongoing IP fees of €1,000 per month. vii. Advertising and promotion costs of €4,000 per month, with an additional charge of €5,000 in March to cover a national medical devices sales event. Prepare a cash flow statement for the three month period ending 31 March (20 Marks) 2018. b) What level of investment would be required in order to have a closing (4 Marks) balance on the 31 March 2018 of €500,000? Does ABC Medical Devices need the €200,000 loan to cover the bank (4 Marks) overdraft? Why is this the case? What are the advantages of preparing a cash flow statement? (5 Marks) 1. You are the co-founder of ABC Medical Devices, a medical device company that has been trading for the past three years. You have now made the decision to seek external investment into the company to expand to overseas markets. As part of the due diligence process, potential investors have asked you to prepare a cash flow statement for the first quarter of 2018. Your records show that ABC Medical Devices will have the following balances on the 1 January 2018: Bank overdraft Debtors Creditors In addition, you anticipate the following transactions during the next three months: 1. New bank loan of €200,000 to cover present overdraft on the 1 January 2018 to be repaid €40,000 every quarter starting 31 March 2018. i. Debtors and creditors must be cleared within the month. ill. Sales and purchases on one month's credit as follows: Sales Purchases €300,000 €100,000 €380,000 €130,000 €490,000 €170,000 d) January February March Required: a) €200,000 €180,000 €50,000 Iv. Payroll costs of €50,000 in January, rising to €60,000 in February and March. v. Internal research and development (R&D) costs as follows: January February March €100,000 €110,000 €150,000 vi. New patent filing costs of €5,000 in March 2018, with ongoing IP fees of €1,000 per month. vii. Advertising and promotion costs of €4,000 per month, with an additional charge of €5,000 in March to cover a national medical devices sales event. Prepare a cash flow statement for the three month period ending 31 March (20 Marks) 2018. b) What level of investment would be required in order to have a closing (4 Marks) balance on the 31 March 2018 of €500,000? Does ABC Medical Devices need the €200,000 loan to cover the bank (4 Marks) overdraft? Why is this the case? What are the advantages of preparing a cash flow statement? (5 Marks)

Answer rating: 100% (QA)

Answer Cash Flow Statement Particulars Amount Cash flow from operating activities Cash received f... View the full answer