Question

Watch Me Flex (WMF)

Watch Me Flex (WMF) is a watch retailer based in Shanghai, China. It operates as a partnership between three owners, Eric, Nicolas, and Alvin. It specializes in the distribution of luxury branded watches, such as Rolex, Patek Phillipe, and Audemars Piguet. Due to the falling economic growth in China, WMF has been facing declining sales revenue during the past year. Further, with the crackdown of corruption, The State Administration of Taxation is reviewing many businesses. To prepare for WMF the owners hired a

Table 1: Select financial information for WMF for 2019. Figures in Chinese yuan (¥).

Items (¥)

Sales revenue 12,000,000

Total current assets 2,570,500

Total current liabilities 2,880,780

Utilities 95,320

Cost of goods sold (COGS) 10,500,000

Equity X

Rent 155,000

Salaries Y

Long-term bank loan 970,500

Depreciation (in 2019) 77,200

Net fixed assets 1,350,500

Total expenses 1,218,400

Interest 123,500

Promotion expenses 30,780

The State Administration of Taxation in China stipulates a standard corporate tax rate of 25%. The fiscal year ends on 31 December for WMF.

(a) State two features of a partnership. [2 marks]

(b) Using the financial information provided in Table 1, calculate the value of X (equity) for WMF

(show all your working). [2 marks]

(c) Using the financial information provided in Table 1, calculate the value of Y (salaries) for

WMF (show all your working). [2 marks]

(d) On a separate piece of paper, construct a profit and loss account for WMF for the year ending

2019. [4 marks]

Answer 1