Eastside spares, owned and operated by Tom Miller, buys and sells motor spare parts. Toms assets and
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.
Accounting
ISBN: 978-1118608227
9th edition
Authors: Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield, John Hoggett