values, advertises and sells residential property on behalf of its customers. The company has been in business for only a short time and is preparing a cash budget for the first  four months of 2013. Expected sales of residential properties are as follows. 2012 2013 2013 2013 2013 Month December January February March April Units sold 10 10 15 25 30 The average price of each property is £180 000 and Thorne Co. charges a fee of 3 per cent of  the value of each property sold. Thorne Co. receives 1 per cent in the month of sale and the  remaining 2 per cent in the month after sale. The company has nine employees who are paid  on a monthly basis. The average salary per

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Thorne Co. values, advertises and sells residential property on behalf of its customers. The
company has been in business for only a short time and is preparing a cash budget for the first 
four months of 2013. Expected sales of residential properties are as follows.
2012 2013 2013 2013 2013
Month December January February March April
Units sold 10 10 15 25 30
The average price of each property is £180 000 and Thorne Co. charges a fee of 3 per cent of 
the value of each property sold. Thorne Co. receives 1 per cent in the month of sale and the 
remaining 2 per cent in the month after sale. The company has nine employees who are paid 
on a monthly basis. The average salary per employee is£35 000 per year. If more than 20 
properties are sold in a given month, each employee is paid in that month a bonus of £140 for
each additional property sold.
Variable expenses are incurred at the rate of 0.5 per cent of the value of each property sold and 
these expenses are paid in the month of sale. Fixed overheads of £4300 per month are paid in
the month in which they arise. Thorne Co. pays interest every three months on a loan of £200 
000 at a rate of 6 per cent per year. The last interest payment in each year is paid in December.
An outstanding tax liability of £95 800 is due to be paid in April. In the same month Thorne 
Co. intends to dispose of surplus vehicles, with a net book value of £15000, for £20 000. The 
cash balance at the start of January 2012 is expected to be a deficit of £40 000.
Required:
(a) Prepare a monthly cash budget for the period from January to April. Your budget must 
clearly indicate each item of income and expenditure, and the opening and closing monthly 
cash balances. 
(b) Discuss the factors to be considered by Thorne Co. when planning ways to invest any cash 
surplus forecast by its cash budgets. 
(c) Discuss the advantages and disadvantages to Thorne Co. of using overdraft finance to fund 
any cash shortages forecast by its cas

 

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