Question

Eastside spares, owned and operated by Tom Miller, buys and sells motor spare parts. Tom’s assets and liabilities as at 30 June 20X0 are as follows:

Current assets
Accounts receivable		$44,200
Inventories		37,500
Cash at bank		16,000
Prepaid marketing expenses		2,300	$100,000
Non-current assets
Motor vehicle	$42,000
Less Accumulated depreciation	12,000	$30,000
Furniture and equipment	$106,000
Less Accumulated depreciation	25,000	81,000	111,000
Total assets			$211,000
Current liabilities
Loan on mortgage		$15,000
Accounts payable		24,700
Accrued administration expenses		4,150	$43,850
Non-current liabilities
Loan on mortgage			130,000
Total liabilities			$173,850
Net assets			$37,150

Tom has also supplied the following estimates for the coming year:

Gross profit	30% of sales
Expenses to be paid during the year
Marketing	10% of sales
Administrative	6% of sales
Finance (including interest on loan)	5% of sales

Note: These expenses are paid. In Example 8.1 these expenses were incurred. Your treatment of them will therefore differ from the treatment in that example.

Depreciation	Furniture and equipment	10% per annum
	Motor vehicle	15% per annum

            

Tom advises that the motor vehicle is used exclusively for marketing purposes and the furniture and equipment is used 50% for marketing and 50% for administrative purposes.

• Interest on loan is $12,000.
• Accounts receivable are expected to be equal to 40 days sales.
• The business operates 350 days per year.
• Accounts payable will be equal to 10% of purchases.
• Inventories will be equal to 12% of cost of goods sold.
• Prepaid marketing expenses will increase by 8%, while accrued administrative expenses will increase by 10% irrespective of the sales level.
• Tom will invest a further $50,000 cash in the business.
• Tom’s drawings are 60% of net profit (to the nearest dollar).
• Tom requires a flexible budgeted statement of financial performance for the coming year for sales levels of $525,000, $700,000 and $875,000.

Answer 1

Projected Financial Statement for three Sales Level:(Finance expense = Paid amount)

Taccount

Net Asset Working:

Net Asset Movements: