Master Budget (Cambridge (CIE) A Level Accounting): Revision Note
Exam code: 9706
Master Budget
How to prepare a master budget?
The master budget includes two forecasted financial statements:
Budgeted statement of profit and loss
Budgeted statement of financial position
Use the other budgets to prepare the master budgets
Worked Example
JJ's Limited provided the following data based on the financial records from last year:
JJ's Limited Statement of Financial Position at 31 December 2025 | |||
|---|---|---|---|
$ | $ | $ | |
Cost | Accumulated Depreciation | Net Book Value | |
Non-current assets | |||
Equipment | 100 000 | 25 000 | 75 000 |
Current assets | |||
Trade receivables | 40 000 | ||
Inventory | 10 000 | ||
Cash and cash equivalent | 6 000 | ||
56 000 | |||
Total assets | 131 000 | ||
Equity | |||
Ordinary Shares of $1 | 90 000 | ||
Retained Earnings | 11 000 | ||
101 000 | |||
Current liabilities | |||
Trade payables | 30 000 | ||
Total equity and liabilities | 131 000 | ||
Additional information
The sales and purchase for next 3 month are expected to be the following:
January | February | March | |
|---|---|---|---|
Sales (units) | 60 000 | 65 000 | 62 000 |
Purchases (units) | 70 000 | 70 000 | 60 000 |
The sales price is $12 per unit, with the purchase cost price being $8 per unit.
All sales and purchases are made on one month credit basis.
Distribution cost is 15% of the sales.
Closing inventory in March is expected to be 3 000 units.
Administration expenses are $15 000 each month.
A dividend of $0.30 will be paid on ordinary shares in March.
Depreciation is charged at 20% using the straight line method.
Depreciation is charged on a monthly basis
(a) Prepare the budgeted profit and loss account for the three months ending 31 March 2026.
(b) Prepare the statement of financial position at 31 March 2026.
Answer:
(a)
Calculate the revenue
(60 000 + 65 000 + 62 000) × $12 = $2 244 000
Calculate the purchases
(70 000 + 70 000 + 60 000) × $8 = $1 6000 000
Calculate the closing inventory
3 000 × $8 = $24 000
Calculate the distribution costs
15% × $2 244 000 = $336 600
Calculate the administration expenses
3 × $15 000 = $45 000
Calculate the depreciation charge
(20% × $100 000) ÷ 12 × 3 = $5 000
JJ'S budgeted statement of profit and loss for the three months ended 31 March 2026 | ||
|---|---|---|
$ | $ | |
Revenue | 2 244 000 | |
Cost of sales: | ||
Opening inventory | 10 000 | |
Purchases | 1 600 000 | |
Less: Closing inventory | (24 000) | |
1 586 000 | ||
Gross profit | 658 000 | |
Expenses | ||
Distribution costs | 336 600 | |
Administration expenses | 45 000 | |
Depreciation | 5 000 | |
(386 600) | ||
Profit for the 3 months | 271 400 | |
(b)
Add the depreciation charge to the accumulated depreciation
$25 000 + $5 000 = $30 000
Calculate the trade receivables
This will be the sales made in March as there is a one-month credit period
62 000 × $12 = $744 000
Calculate the trade payables
This will be the purchases made in March as there is a one-month credit period
60 000 × $8 = $480 000
Calculate the dividends
$90 000 × 30% = $27 000
Calculate the retained earnings
Start with the balance at 31 December 2025
Add the profit
Subtract the dividends
$11 000 + $271 400 - $27 000 = $255 400
Calculate the cash balance
Start with the balance at 31 December 2026
Add the trade receivables balance plus sales from January and February
Subtract trade payables balance plus purchases from January and February
Subtract administration expenses and distribution costs
Subtract dividends paid
$ | $ | |
|---|---|---|
Receipts | ||
Payments from trade receivables | ||
Opening trade receivables balance | 40 000 | |
Add sales | 2 244 000 | |
Subtract closing trade receivables balance | (744 000) | 1 540 000 |
Payments | ||
Payments to trade payables | ||
Opening trade payables balance | 30 000 | |
Add purchases | 1 600 000 | |
Subtract closing trade payables balance | (480 000) | 1 150 000 |
Distribution costs | 336 600 | |
Administration expenses | 45 000 | |
Dividends paid | 27 000 | |
1 558 600 | ||
Net cash payments | (18 600) | |
Opening cash and cash equivalents | 6 000 | |
Closing cash and cash equivalents | (12 600) |
Enter the cash and cash equivalents as current liability
JJ'S budgeted statement of financial position as at 31 March 2026 | |||
|---|---|---|---|
$ | $ | $ | |
Cost | Accumulated depreciation | Net book value | |
Non-current assets | |||
Equipment | 100 000 | 30 000 | 70 000 |
Current assets | |||
Trade receivables | 744 000 | ||
Inventory | 24 000 | ||
809 400 | |||
Total assets | 838 000 | ||
Equity | |||
Ordinary shares | 90 000 | ||
Retained Earnings | 255 400 | ||
345 400 | |||
Current liabilities | |||
Trade payables | 480 000 | ||
Cash and cash equivalent | 12 600 | 492 600 | |
Total equity and liabilities | 838 000 | ||
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