For this assignment, you are required to answer the following questions, showing all working where appropriate. For the purposes of giving each student a unique set of questions (and answers), some of the numerical digits in the questions have been replaced with the letters A, B or C. These letters represent the last three digits of your unique SCU student number.
Below is a Statement of Financial Position for a small business as at the end of 2019.
Property, Plant & Equipment 60
Accumulated Depreciation (2C)
Suppliers Accounts Payable 12
Interest Only Bank Loan 5B
a) If the business pays a flat tax rate of 2C%, construct a Statement of Financial Performance for the business for 2020 showing: (6 marks)
i) Gross profit
ii) Operating profit
iii) Net profit after tax
c) Show the journal entries for recording the new taxes payable.(2 marks)
d) Calculate the total inventory purchases for 2020 and the total cash amounts paid to suppliers.(3 marks)
e) If total cash receipts from accounts receivable were $175,000, calculate the end of year balance for accounts receivable.(2 marks)
f) Based on all of the above information, construct an updated Statement of Financial Position for the business at the end of 2020. Note the Business’s final cash position will be a balancing item assuming all of the other information has been processed correctly.(5 marks)
g) Based on all of the above information, construct a Statement of Cashflows for 2020 and check that the balance sheet cash position is correct.(5 marks)
a) Using the financial statements created in Question 1, calculate the following ratios for the business: (15 marks / 1.5 marks each)
i)Gross Profit Margin
ii)Net Profit Margin
iii)Return on Assets
iv)Return on Equity
vii)Net Cash Flow ratio
ix)Asset Turnover ratio
x)Asset ‘Days’ Turnover
b) Write a short summary (300 words maximum) of your results (Are they good, bad or average?), including a comment on any areas that might warrant further attention or investigation by the business owner. (5 marks)
a)Using the financial statements created in Question 1, calculate the business’s net working capital at the end of 2020. (2 marks)
b)Calculate the cash cycle for the business and give a brief discussion (300 words maximum)of the results including how the business could improve its cash cycle. (8 marks)
The garden supply company has the following business transaction estimates relating to the final quarter of 2020. Assume cash transactions where appropriate unless explained otherwise.
Total Sales – See note 1. 110,000 130,000 180,000
Receipts from Accounts Receivable To calculate – See note 2.
Wages 30,000 35,000 40,000
Office Equipment 0 7,000 0
Lease Prepayment for 2021 0 0 4,000
Administrative Expenses 3,000 3,000 3,000
Accrued Expenses 0 0 8,000
Depreciation on Office Equipment 7,000 8,000 8,000
Maturing of Term Deposit 8,000 0 0
Credit Purchases 70,000 80,000 90,000
Payments of Accounts Payable To calculate – See note 3.
Drawings 3,000 4,000 5,000
1. 30% of total sales are cash sales. 70% of total sales are on credit.
2. Actual receipts from Accounts Receivable are 7A% of the previous month’s credit sales and the balance owing is received in the following month. Actual credit sales were $70,000 in both August and September 2020.
3. Credit purchases on Accounts Payable are paid 6B% in the month of purchase with the remainder paid in the month following. Credit purchases in September 2020 were $60,000.
4. Garden Supply’s cash balance at 1 October 2020 was $555.
Prepare a month by month cash budget for the quarter ending 31 December 2020 and comment briefly on the monthly cash positions.
The garden supply company is also considering taking out a loan and buying a small truck to save costs on deliveries. The truck costs $6A000 and is expected to earn end of year after tax net cash inflows of $10000, $1B000, $20000 and $20000 for the next four years before it wears out sufficiently to be unreliable and must be sold for an estimated $1C000 (after tax).
a) Calculate the NPV of the truck if the interest rate on the loan is 5.A% pa.(3 marks)
b) Calculate the NPV of the truck if the interest rate on the loan is 10.B% pa.(3 marks)
c) Advise management of your recommendation regarding purchase of the truck based on your NPV calculations.(3 marks)
d) Calculate the accounting rate of return on the truck investment.(3 marks)
e) What additional advice would you give management if the required payback period was three years?(3 marks)
In answering the questions, state any assumptions you need to make and show ALL your workings. Marks will be deducted where no workings are included even if the final answers are correct.