Question

Refer to the ‘Data Task A’ sheet in the accompanying Excel workbook.

You have been provided the most recent Profit and Loss Statement for T&K Solutions that shows the bookkeeping service is losing money.

Using the proforma in ‘Schedule 1’, re-calculate the 2017 profit for T&K Solutions without the bookkeeping service. Be careful to take into account all additional information provided in the ‘Data Task A’ worksheet.

DATA FOR TASK A:	2017 Profit and Loss Statement for T&K Solutions:
	Taxation	Bookkeeping	Advisory	Total
?	$	$	$	$
Revenue	800,000	195,000	950,000	1,945,000
Less:  Costs	?	?	?	?
- Partner Salary	75,000	75,000	150,000	300,000
- Professional Staff Costs	320,000	120,000	400,000	840,000
- Office Staff	45,000	45,000	45,000	135,000
- Client travel costs	25,000	5,000	52,000	82,000
- IT Support	5,000	3,000	9,000	17,000
- Printing & Stationary	8,000	3,200	11,000	22,200
- Advertising	8,000	8,000	8,000	24,000
- Rent	16,000	16,000	16,000	48,000
- Utilities	8,000	8,000	8,000	24,000
- Depreciation	5,000	5,000	5,000	15,000
- Bad debts	2,000	3,000	-	5,000
Net Profit	283,000	-96,200	246,000	432,800

ADDITIONAL INFORMATION:
Partner Wages	Terry and Kerry are both paid a salary of $150k pa. Terry's salary is spread between Tax & Bookkeeping. Kerry's salary is charged to Advisory
Professional Staff	Professional Staff are paid $80k per full-time equivelent (FTE). Tax has 4 professional staff , Advisory has 5 professional staff and Bookkeeping has 3 part time staff who each work  0.5 of a FTE. If bookeeping was to close, these staff would no longer be required.
Office Support Staff	The firm has 3 office support staff each paid $45k per year. Currently their costs are spread evenly between the 3 service units. It is expected that if bookkeeping was to close there would be no change to the support staff.
Client Travel Costs	Client travel costs vary depending on the service and client needs.
IT support	IT support costs vary with the associated service unit.
Printing & Stationary	Printing and stationary costs vary depending on the client needs and service performed.
Advertising	Advertising costs are alloacted evenly across the firm. However, if bookkeeping was to close it is expected advertising costs would only reduce by 10% in total.
Rent & Utilities	Rent and Utilities are currently spread evenly across the 3 service units.  If bookkeeping was to close the additional floor space would be absorbed by the remaining services and there would be no savings in utilitity costs.
Deprectiation	Depreciation relates to shared office equipment and is charged evenly across each service unit. If bookkeeping was to close all existing equipment would remain.
Bad debts	Bad debts relate specifically to clients within that service unit.

Schedule 1

TASK A SCHEDULE 1:	2017 Profit & Loss - If T&K Drop Bookkeeping
	Taxation $'000	Bookkeeping $'000	Business Advisory $'000	Total $'000
Revenue
Less:  Costs
- Partner Salary				please answer it
- Professional Staff Costs				please answer it
- Office Staff				please answer it
- Client travel costs				please answer it
- IT Support				please answer it
- Printing & Stationary
- Advertising				please answer it
- Rent
- Utilities
- Depreciation
- Bad debts				please answer it
Net Profit
	If bookkeeping was closed, the net change in profit for T&K solutions would be :

Answer 1

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	Taxation	Book Keeping	Advisory	Total		Without Bookkeeping
Revenue	800000	195000	950000	1945000		1750000
Partner Salary	75000	75000	150000	300000		300000	Full Salary as partner will be with firm even after closure of Bookeeping
Professional Staff Cost	320000	120000	400000	840000		720000
Office Staff	45000	45000	45000	135000		135000	No Change in Support Staff
Client Travel	25000	5000	52000	82000		77000
IT Support	5000	3000	9000	17000		14000
Printing and Stationery	8000	3200	11000	22200		19000
Advertising	8000	8000	8000	24000		21600	only 10% reduction
Rent	16000	16000	16000	48000		48000	No Saving
Utilities	8000	8000	8000	24000		16000	No Saving
Depreciation	5000	5000	5000	15000		10000	No Saving
Bad Debt	2000	3000	0	5000		2000
Net Profit	283000	-96200	246000	432800		387400
							Change in Profit would be: Reduction by 432000-37400=45400