Many companies take months to prepare their budgets for the year, and most questions that you have attempted to date simplify the process to such an extent that one forgets the need for frequent revisions to the draft budgets as new data comes in, or forecasts change, or office politics and negotiations take place.
This exercise is designed to remind you of the complexities of the budgetary process, and to ensure further practice with spreadsheets. (Most employers want to see proficiency with spreadsheets, so put it on your CV!) Obviously we cannot spend the months preparing a budget that an accountant in a large company might spend, but you will have to prepare a draft budget on a spreadsheet, and you will subsequently have to make amendments to your budget as further information becomes available.
You are the chief accountant of a company which buys and distributes a single product. At 30th April 2018 the company’s balance sheet is expected to be: £
Non Current assets at cost 4,380,000
less: Depreciation provision 1,780,000
Stock (56,000 kilograms) 1,788,000
Receivables: February sales 160,000
March sales 960,000
April sales 960,000
Fixed administration expenses prepaid 15,000
Cash at bank 875,000
less: Current liabilities:
Payables for materials: April purchases 160,000
Fixed administration expenses accrued 20,000
Proposed dividend 120,000
Less: Non Current Liabilities:
16% £1 Debentures 1,000,000
Ordinary shares of 25p each, fully paid 2,000,000
Retained profit 3,708,000
The following information is available:
Taxation 350,000 –
Proposed dividend – 120,000
Fixed administration expenses 206,500 206,500
Fixed wage costs 237,500 237,500
It is to be assumed that the settlement of payables accounts will occur on the due dates.
Accrued 22,000 24,000
Prepaid 16,000 17,000
The company’s financial year ends on 31st May each year.
You are required to present your suggestions for the budget for the months of May and June 2018, the presentation to be made during the week commencing 16th April. The presentation should last for 15 minutes, and you must be able to answer questions from ‘The Board’.
You will need to be able to address the points made by each manager during the budgetary process, and hence to make your recommendations for the budget. The aim is to have a budget that can satisfy as many of the required criteria as possible, and that will be approved by the Board.
Marks will be awarded for presentation style as well as the spreadsheet.
You must be able to show your spreadsheet to the Board, if necessary, and hence justify your recommendations. The spreadsheet must show the overall position of the company, with the three financial statements, supporting data, graphs etc – whatever you consider necessary. All cells in the spreadsheet must be linked with formulae so that any changes will update the financial statements correctly.
Marks will be awarded as follows:
Spreadsheet Integrity 30%
Accounting Knowledge 30%
The mark that will be given for the presentation will be for the GROUP, and it is up to you to determine how that group mark is split amongst you. Thus any slacker will find him / herself being given a low proportion of the group mark, which is of course only fair. Likewise an excellent contribution deserves extra marks. Note that an individual’s mark after your adjustments cannot exceed 100% and also that an individual’s mark can increase by a maximum of 10 marks compared with the group mark.
In order to avoid victimisation, I will expect every member of the group to sign their agreement with the split of marks, whatever split that might be.