1. Cost of exhibition catalogues. A catalogue for each exhibition will cost £5,000 to produce. The catalogue for the first exhibition will have been paid for in December out of Caroline’s remaining £10,000. The catalogues for the second and third exhibitions will also be paid for one month in advance.
2. Gallery premises costs. Business rates are to be paid monthly; the cost is £750 per month. Electricity costs will average out at £60 per month and Caroline expects to receive a bill for the first three months' electricity in March, and to pay it in April.
3. Wages. Caroline will pay a part time assistant £550 per month.
4. Other expenses. Caroline estimates that a total of £1,000 in other expenses will be paid each month.
5. Drawings. She plans to draw £700 per month in cash.
6. Private view expenses. In each of the three months Caroline will have to spend an estimated £450 on buying in wine and other refreshments for the private view. This figure also includes the cost of hourly-paid waiting staff to take drinks round to guests.
7. Advertising. The initial round of press adverts will appear in December, and the £3,000 cost will be paid for out of Caroline’s remaining £10,000. Each month £400 will be paid for brochures and postage costs to send out to people on the gallery’s mailing list.

The bank balance at 1 January 20X4 will be £2,000 after advertising and catalogue costs have been paid for. The advertising and catalogue costs form part of Caroline’s start-up capital.

The gallery premises are to be depreciated over 25 years on the straight-line basis, with an assumption of nil residual value.

Prepare for Caroline:

1. a budget cash flow statement for the three months of January, February and March 20X4
2. a budget statement of profit or loss for the three months ending 31 March 20X4
3. a budget statement of financial position at 31 March 20X4 and:

briefly discuss whether or not you think Caroline’s business is going to be successful, identifying any areas where cash flow might be a problem

Answer rating: 100% (QA)

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