Executives of Prime Rubber Industries finished their series of planning meetings and arrived at the business plan for the next financial year. The plan is summarized below:

(a) The company plans to earn a profit after tax of ₹3,850,000. Income taxes are expected to be 30% of the earnings.

(b) During the year, shares of the face value of ₹2,800,000 will be issued, at a premium of 100%.

(c) An office block will be purchased at a down payment of ₹3,500,000 by taking on a mortgage, at the rate of 10 percent interest per annum, for the like amount.

(d) Plant and equipment costing ₹2,300,000 will be added to the factory on the basis of deferred payments to be made in 5 equal annual instalments, beginning with the date of acquisition.

(e) Accounts receivable are to be maintained at the level of one month’s sales. Inventory stock was expected to be ₹50,00,000 of which 60% will be raw material. Average credit available will be about 30 days purchases.

(f) It is expected that during the plan period, actual operations may be for 300 days.

(g) Operating expenses projections for the period are as follows: Raw material cost will be 30% of sales revenue; Wages will be 10% of sales revenue; other direct manufacturing expenses will be 10% of sales revenue.

(h) Administrative expenses are projected to be ₹25,00,000. Selling and distribution expenses are projected to ₹18,00,000.

(i) Depreciation of plant and machinery is calculated on the basis of 10% straight line and buildings, of 2.5% straight line.

Question

Based on the above information, prepare a projected income summary for the plan period and a balance sheet as at the end of the plan period.

Transcribed Image Text:

Assets Cash Accounts receivable RM inventory FG inventory Prepaid rent and insurance Current Assets Prime Rubber Industries Balance Sheet as on December 31, 2X10 Amount Land Plant and equipment Less: Accumulated depreciation Goodwill Total Assets 1,400 700 500 3,000 3,880 1,000 120 8,500 300 700 1,000 10,500 Liabilities and Owners Equity Accounts payable Bank overdraft Current Liabilities Owner(s) Equity Share capital Share premium (all figures in *'000) Amount Retained earnings Total Liabilities & Owners' Equity 1,500 3,500 5,000 1,000 1,000 3,500 10,500