Question

In: Accounting

In-Class Activity 3 Financial Planning (25 marks) Garrity and Chawla Electronic Ltd is a small business...

In-Class Activity 3 Financial Planning

Garrity and Chawla Electronic Ltd is a small business to be formed by Philip and Hitesh to sell a range of products from an electronic shop in a shopping mall in Hamilton. On 1 September 2018, they plan to invest $60,000 cash to acquire 30,000 $1 shares each in the business. Of this, $25,000 is to be invested in new fittings and equipment in September. These fittings and equipment are to be depreciated over five years on the straight-line basis (their scrap value is assumed to be $5,000 at the end of their lives). The straight-line basis of depreciation allocates the total amount to be depreciated evenly over the life of the asset. In this case, a half-year’s depreciation is to be charged in the first six months.

The sales and purchases projections for the business are as follows:

September

2018

$

October

2018

$

November

2018

$

December

$

January

2019

$

February

2019

$

Total

Sales revenue

15,300

45,900

45,900

61,200

61,200

76,500

306,000

Purchases

30,000

45,000

37,500

37,500

45,000

45,000

240,000

Other Costs*

13,500

13,500

13,500

13,500

13,500

13,500

81,000

Dividends

20,000

20,000

Equipment

10,000

10,000

*Other Costs includes wages but excludes depreciation

The sales will all be made by credit card. The credit card business will take one month to pay and will deduct its fee of 2 per cent of gross sales before paying amounts due to Garrity and Chawla Electronics Ltd. One month’s credit is allowed by their suppliers.

Other costs shown above do not include rent of $10,000 per quarter, payable on 1 September and 1 December. All other costs will be paid in cash. The two shareholders decided that a dividend payment of $20,000 ($10,000 each) was appropriate to be paid in the month of February as a reward for their investment in the company. Philip and Hitesh also decided that the business required additional equipment of $10,000 to be spent in February so that they can commence using this additional equipment at the beginning of March 2019.

Closing inventory at end of February is expected to be $87,000. Ignore taxation for this question. Where necessary, round calculations to the nearest dollar ($).

Required:

  1. Prepare a projected cash flow statement for Garrity and Chawla Electronic Ltd for each of the six months to 28 February 2019.
  2. Prepare a projected income statement for the 6 months ended 28 February 2019.

(c)        Does the Garrity and Chawla Electronic Ltd have cash flow problems? Identify what may be causing any problems and briefly discuss ways in which the business might be able to improve its cash flows.

Solutions

Expert Solution


Related Solutions

Study 3    (Total = 25 Marks) Business Combination On 1 July 2020, Tall Ltd acquired...
Study 3    (Total = 25 Marks) Business Combination On 1 July 2020, Tall Ltd acquired all of the assets and liabilities of Blacks Ltd. In exchange for these assets and liabilities, Tall Ltd issued 100 000 shares that at date of issue had a fair value of $6.30 per share. Costs of issuing these shares amounted to $1000. Legal costs associated with the acquisition of Blacks Ltd amounted to $4200. The asset and liabilities of Blacks Ltd at 1...
Soul Ltd is an Australian company that makes and sells small electronic goods and its financial...
Soul Ltd is an Australian company that makes and sells small electronic goods and its financial year ends on 30 June. On 1 February 2018, a customer from the United States ordered some goods from Soul Ltd at an invoice cost of US$400,000 on terms FOB destination. On 30 April 2018, the goods were delivered to the customer. The agreed payment arrangements are that 30% of the total amount owing would be paid on delivery, 20% three months after delivery,...
Trent Controls Ltd is an electronic engineering business that specialises in the production of electronic equipment...
Trent Controls Ltd is an electronic engineering business that specialises in the production of electronic equipment for security forces throughout the world. Recently it has received a request to produce 10 x VVD units for a foreign government. The VVD was developed some time ago by the business at a total research and development cost of £220,000. Up to this point there has been no interest shown in the equipment and no units have been produced. The present order seems...
1. Operating Business: a) Briefly describe the steps and procedure of financial planning. [8 Marks] b)...
1. Operating Business: a) Briefly describe the steps and procedure of financial planning. [8 Marks] b) Describe the general assumption and principle used in FCF forecast. 2. Discounted Cash Flows formula: a) Discuss the economic principle used in the formula. [8 Marks] b) Describe how the consistency principle is involved in estimate a levered firm value.
Problem 3 (25 marks) Eagles Inc. had the following statement of financial position at the end...
Problem 3 Eagles Inc. had the following statement of financial position at the end of operations for 2017: Cash 32000 Accounts payable 48000 Accounts receivable 33920 Bonds payable 65600 FV-NI investments 51200 Common shares 160000 Equipment (net) 129600 Retained earnings 37120 Land 64000 Total 310720 310720 During 2018, the following occurred: 1. Eagles sold its FV-NI investments portfolio at a gain of $9,600. 2. A parcel of land was purchased for $75,200. 3. An additional $60,800 worth of common shares...
The importance of financial planning, business continuity and contingency planning, and/or your recommendations on business continuity...
The importance of financial planning, business continuity and contingency planning, and/or your recommendations on business continuity in the post COVID 19 era. What advice would you give to your boss to plan for the successful continuity of the company’s accounting information system and the business as a whole?
Discuss the 3 things that are important for an organisation. (25 Marks)
Discuss the 3 things that are important for an organisation.
Question 4 (25 marks):In the planning of the monthly production for the next four months, in...
Question 4 :In the planning of the monthly production for the next four months, in each month a company must operate either a normal shift or an extended shift (but not both) if it produces. It may choose not to produce in a month. A normal shift costs $100,000 per month and can produce up to 5,000 units per month. An extended shift costs $140,000 per month and can produce up to 7,500 units per month. The cost of holding...
QDM Question 4 (25 marks): In the planning of the monthly production for the next four...
QDM Question 4 : In the planning of the monthly production for the next four months, in each month a company must operate either a normal shift or an extended shift (but not both) if it produces. It may choose not to produce in a month. A normal shift costs $100,000 per month and can produce up to 5,000 units per month. An extended shift costs $140,000 per month and can produce up to 7,500 units per month. The cost...
Big plc is planning on making a bid to takeover Small Ltd. They are both in...
Big plc is planning on making a bid to takeover Small Ltd. They are both in the same industry and have similar gearing levels of 20% (where gearing is debt as a percentage of total finance). Big plc has estimated that the takeover will increase its annual cash flows by the following amounts: Year After-tax (but before interest) cash flows£m 2015 6.4 2016 9.1 2017 11.5 2018 onwards 12.5 Small Ltd has 7% irredeemable debentures of £21 million trading at...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT