Hi, could you please help me to do a budget preparation? Many thanks in advance
Use the following information and prepare the budget (including the GST movements) for your employer Keener Ltd for the quarter ending 30 June 20×2.
Keener Ltd sells goods for $15 per item plus GST. These are purchased for $7 per unit plus GST. In March 5,500 units were sold.
Unit sales are forecast to be: April 6,500 May 8,000 June 8,500 July 6,500
Keener Ltd’s customers pay for 15% of sales cash on delivery. The remaining 85% of sales are on credit. All credit customers pay in the month following sale; there are no bad debts. The accounts receivable in the balance sheet are all for sales made in March and are due to be paid in April.
To ensure there are sufficient goods on hand for resale, Keener ensures that at the month-end that 25% of the goods required for sale in the following month are available. That is, the end of month inventory for April is 25% of the goods required for sale in May, and so on. This end of month inventory is then the opening inventory for May (in this instance). Keener pays for 50% of his purchases in the month of purchase and the remaining 50% in the following month.
To help create the budget you have been given the following expense information:
Sales staff are paid a commission of 2.5% of the GST inclusive sales made.
Other salaries and wages are $1,500 a month.
Shipping costs for goods sold are 5% of the GST inclusive sales.
Advertising is paid of $7,500 a month.
Other expenses (all these are subject to GST), 3% of the GST inclusive sales.
Depreciation will be incurred at the rate of $2,200 a month, including for the depreciation of any assets acquired in the quarter.
All of these expenses are GST exclusive, where and if GST is chargeable. These are all paid in the month incurred, including the commission (so April sales commission is paid in April). Keener plans to buy further office equipment costing $10,000 plus GST in April.
A $4,500 dividend is to be paid to shareholders in June.
To ensure that cash is available to purchases, Keener wishes to ensure that a minimum cash balance of $30,000 is retained. The bank will provide borrowings in increments of $1,000 at an interest rate of 3% a month. Interest is charged on a simple basis and is not compounded. Loans are to be paid back as soon as sufficient cash is available. When calculating interest on any loan taken it must be assumed that the loan is taken at the start of the month and repaid at the end of the month as it is not certain when in the month the loan will be needed.
The GST basis for Keener is the invoice (not cash) basis. Taxable periods are every two months ending at the end of each ‘odd’ month (that is January, March, May etc). The balance sheet for the period ending 31 March 20×2 is:
Keener Ltd Balance sheet As at 31 March 20×2
Current assets Cash $13,600
Accounts receivable $80,644
Total current assets $105,619
Buildings and Equipment. $120,000
Total Assets $225,619
Accounts payable $23,144
GST Payable $4,500
Total current liabilities $27,644
Equity Shares issued $120,000
Retained earnings $77,975
Total Liabilities and equity $225,619
required to prepare a master budget including a) A Sales Budget (including schedule of expected cash collections)
b) A Purchases budget (including schedule of cash disbursements
c) A Sales and Administration Budget (including schedule of cash disbursements for selling and admin expenses)
d) A Schedule for GST accounting
e) A Cash Budget f) A Budgeted Income Statement
g) A Budgeted Balance Sheet
* GST 15%
GST increases the sales price by 15%
To work out the GST amount, multiply the GST exclusive mount by 15%
To add, the GST to the exclusive amount, multiply by 1.15
If you are given the GST inclusive amount, you need to use a fraction to work out how much the GST is, as now it is no longer 15% (it was 15% of the price before we added GST). Divide the amount by 23 and multiply by 3 to get the GST
If you want to calculate the GST exclusive price when you are given the GST inclusive price, divide by 1.15.
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