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Mavuno Ltd. is a small-scale company that specializes in the production of farm tools.

The company uses budgets for planning and controlling its activities. Currently the management are preparing budgets for the three months ending 31 March 2020.

The projected statement of financial position as at 31 December 2019 is shown below:

	Cost	Depreciation	Net book value
	Shs.	Shs.	Shs.
Fixed assets	2,000,000	200,000	1,800,000
Current assets:
Inventory		320,000
Trade debtors		630,000
Cash and bank balances		8,400
		958,400
Current liabilities:
Trade debtors	28,000
Accrued expenses	20,000
Proposed dividend	4,000
Taxes payable	3,500	(55,500)	902,900
			2,702,900
Financed by:
Ordinary share capital
100,000 ordinary shares of Sh. 10 each			1,000,000
Share premium			500,000
Retained profits			452,900
Long term liability:
Bank loan			750,000
			2,702,900

The following information has been extracted from the companys budget schedules:

	Sales	Rent	Overheads	Wages	Material stocks
2019	Shs.	Shs.	Shs.	Shs.	Shs.
November	500,000	80,000	180,000	40,000	272,000
December	340,000	80,000	180,000	60,000	320,000
2020
January	400,000	80,000	190,000	60,000	480,000
February	600,000	80,000	200,000	80,000	464,000
March	580,000	80,000	200,000	74,000	464,000
April	580,000	80,000	200,000	70,000	500,000

Additional information:

1. The company sells the farm tools at a mark-up of 25%.
2. Purchase of material stocks is on credit and it is paid for in the month of receipt by the company.
3. Employees are paid wages at the end of every week with the earnings of the last week of the month being settled in the following month. (Assume one month has 4 weeks)
4. Sales commission is paid one month in arrears at the rate of 1% of sales.
5. Overheads include a monthly depreciation charge of Sh. 25,000.
6. 25% of the sales are on cash basis. The other 75% is receivable two months after the sale.
7. The company will receive a loan of Shs. 2, 500,000 in the month of March 2020 from Wakulima Bank.
8. Old equipment will be sold for Shs. 250,00 in February 2020 and a new equipment will be purchased at Sh. 1,200,000 to replace the old equipment sold. The new equipment will be paid for in the month of March 2020.
9. Rent is paid for quarterly in advance in the months of January, April, July and October.

Required:

(a) Cash budget for the three months ending 31 March 2020. (6 marks)

(b) Budgeted trading profit and loss account for the three months ending 31 March 2020. (6 marks)

(c) Budgeted Statement of financial position as at 31 March 2006. (8 marks)

(Total: 20 marks)

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