Master Budget (Cambridge International A-Level Accounting)

Spec point — how to prepare the following budgets: – budgeted statement of profit or loss – budgeted statement of financial position

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