Answers to

Demonstration
Exercises and practice
Questions
Сhарtеr 1

Demonstration Exercise solutions

Demonstration Exercise 1.2

Smаrt Sports
Cash budget fоr the three months ended ЗО June 2021

Apr Мау June Total 2nd

2о21 2о27 202t quarter 2021
Е Е Е Е
Receipts
Capital
Receipts frоm cash customers 5,000 5,000
Receipts from credit customers 2,400 4,000 6,400
Tota1 receipts 2,4оо 9,000 11,4о0
Payments
Prirrting tnachine 5,500 5,500
Paynents to suppliers 1,500 2,000 4,000 7,500
printer hire 100 100 100 з00
Accountant's fees 1,25 1,25 125 з75
Delivery 75 100 100 z/ J
Telephone з75 J/э

Other expenses з00 400 400 1,100

Drawings 600 600 600 1,800
Total payments 2,7оо 8,825 5,700 77,225
Net receipts/(paymerrts) (2,700) (6,425) з,з00 (5,в25)
Balance brought forward 7,075 4,з75 (2,050) 7,075
Balance carried forward 4,з75 (2,050) 1,250 1,250
Answers to Demonstration Exercises and Practice Questions

Sam could ask his motheT foT а loan оr he could seek ап overdraft. As he is expecting to Ье очеr-
drawn in Мау Ьу Д2,050, he would need to have а 1оап or ап overdTaft of at Ieast f2,050 in рlасе
Ьу the end ofApril.

Demonstration Exercise 1.3

а) Football kits:
GToss profit margin
Superstars 1,В00/6,000 х 100 = З0.0%
United В00,/2,000 х 100 40.0%
=
University 1,з50/з,000 х 100 = 45.0%

Ь) Тhе очеrа1l gross profit maTgin that would Ье made on the three football klts

(],В00+ В00+ 1,З50)

х 100% = З5.9%
(6,000+2,000+З,000)

с) Hockeykits:
Gross profit margin
Rovers 9о0/2,4оохlо0о/о=З7.5о/о
Tigers 2,000,Z4,000 х 1000/о = 50.0%
Panthers 1,000,/5,000 х 100% = 20.0%

d) The overall gross profit margin on the three hockey kits

(900+2,000+ 1,000)
хIо0%-З4.2о/о
(2,400+4,000+5,000)

е) The profitability of the different contracts is чеrу variable. The Tigers' contract is expected
to make а 50Ио gross profit margin, whereas the PantheTs' contract wi11 make only а 200lо
margin. Overa1l, hоwечец the gross profit maTgin expected to Ье made on selling footba11
kits is З5.90lо, which is only slightly mоrе than the mаrgiпоf З4.2О/о expected to Ье made оп
the hockey kits.

Demonstration Exercise 1.4

а)

Sales in cost of sales = purchases purchases

month !. paid fоr
Е

July 2,40о х 60о/о 1,44о Augttst 2021

plus Д2,000 оf inventory
Attgttst 2,4оо х 600/о 7,440 Septel-ntler

September з,000 х боо/о 1,в00 October

October з,000 х 600/о 1,в00 NочепЬеr
November з,400 х 600/о 2,о40 DесеmЬеr
DсссmЬсr з,в00 х 60о/о 2,2в0 |Iaшlary 2о22
 Answers to Demonstration Exercises and Practice Questions

ь)

Smart Sports
Cash budget for the six months ended З1 December 2021
July August September осtоЬеr November December Total
Е t- Е Е Е Е Е

Receipts
Frоm 2,4о0 2,40о з,000 з,000 з,400 74,2оо
customers
Loat-t 12,000 12,000
Total 12,000 2,4оо 2,4оо з,000 3,000 з,400 26,2оо
receipts
Payrnents
Payments to з,44о \,44о 1,в00 1,в00 2,040 10,520
sttppliers
Teleplrone 400 400 во0
Electгicity 650 650 1,300
Accountant'S 1,25 125 125 125 125 125 750
fees
Delivery 100 100 100 зOо
coStS

Other 110 110 110

-1-1
0 110 110 660
expenSeS
Vап 10,000 10,000
Dгawil-tgs 600 600 600 600 600 600 3,600
Total 935 4,з75 з,425 12,6з5 2,6з5 з,925 27,9зо
payments
Net 1 1,065 (1,975) (1,025) (9,6з5) 365 (525) (1,7зо)
receipts/
(payments)
Balance 1,250 12,315 10,з40 9,з15 (з20) 45 1,25о
Ыought
forward
Balance 12,з 15 10,з40 9,з15 (320) 45 (4в0) (480)
саrriеd
forward
Answers to Demonstration Exercises and Practice Questions

Worlting to find payr-r-rerrts to suppliers:

Sales iп cost of sales = purchases Purchases paid for

month Е
Е

July 2,40о х боо/о 7,440 August 2021

plus f2,000 of inventory
Augttst 2,4оо х 600/о I,440 September
September з,000 х 600/о 1,в00 осtоЬеr
осtоЬеr з,000 х 60% 1,800 NочеmЬеr
NочеmЬеr з,400 хбоо/о 2,о40 December
December з,в00 х 60о/о 2,2во Janl]аly 2022

Question Solutions
Тrче оr False?

А False. The cash budget for а business should only include business transactions and not
include реrsопа1 cash receipts and expenses.

В Тruе.

С False. Drawings are amounts taken out of the business fоr the owner's реrsопаl use.

D False. А sale is made whеп the goods or services are invoiced to the customer.

Е Тruе.

Practice Question Solutions

1. MaTis
а) Purchases аrе 75Ио of sales for the month, and so will Ье:

January February Маrсh Apri1 Мау June

€з,000 €з,з00 €з,750 €4,050 €4,200 €4,500

Ь) Cash received frorn sales will Ье:

Jапuаrу FеЫuаrу Маrсh April Мау June

Sales €4,000 €4,400 €5,000 €5,400 €5,600 €6,000
Immediate €1,000 €1,100 €1,250 €1,з50 €1,400 €1,500
1month 0 €2,000 €2,2оо €2,500 €2,700 €2,в00
2 montlrs 0 0 €1,000 €1,100 €1,250 €1,з50
Total €1,о00 €з,100 €4,45о €4,950 €5,350 €5,650

с) Cash paid for рurсhаsеs:

January FеЬrчаrу March April Мау June

0 €з,000 €з,з00 €з,750 €4,050 €4,200
 Answers to Demonstration Exercises and Practice Questions

2. Hugh
а)

Hugh
Caslr budget fоr the tlrrее months ended З Маrсh 2022

January FеЬrчаrу Маrсh Total

Е Е Е Е
Receipts
Capital 5,000 5,000
cash sales 1,000 1,120 1,200 з,з20
credit sales 1,500 1,6в0 з,180
Tota1 receipts 6,0о0 2,62о 2,880 11,500
Payments
Computer 650 650
purchases 1,500 1,6в0 1,800 4,980
Electricity ,,7 Е,
275
Telepl-rone 100 100 100 з00
Vап 2,500 2,500
Drawings 1,200 1,200 1,200 з,600
Total payments з,450 2,980 5,875 12,зо5
Net receipts,z (payments) 2,550 (з60) (2,995) (в05)
Ваlапсе tlrought fоrwагd 2,550 2,т9о
ваlапсе carried forward 2,550 2,19о (в05) (в05)

Note: Тhе comprtter Hugh botrgl-rt for his регsопа1 trse is rrot included in the cash brrclget for the lэusiness.

b)Hugh would wish to negotiate ап overdraft facility of approximately Д1,0ОО to Ье in place

Ьу the end of FеЬrчаrу.
с) Other costs that Hugh might incur that hаче not Ьееп included in the cash budget could Ье
iпsurапсе costs, petrol costs for the van, and rепtаl costs for апу premises Hugh is using.
d)Hugh might Ье able to reduce his forecast costs Ьу leasing the van instead of buying it. Не
could also buy the computer on credit. Не could also reduce the level of drawings that he
is planning to take out ofthe business.

Chapter 2
Demonstration Exercise Solutions
Demonstration Exerci se 2.2
1. Тhеrе would Ье no effect оп profit, as sales and purchases are поt affected.

2. The cash balance would go down Ьу €30 as less cash would have соmе in frоm sales.