Task $1$

You are to prepare a $12$ month cash flow forecast for

Sharma and Ryan based on the information presented

below. Sales and purchases for the $12$ months are

predicted to be as follows.

These sales and purchases figures are before VAT has

been added. VAT should be added at the rate of $20\%$

and shown in separate rows for VAT received on sales

and paid on purchases. Every three months a figure

should be shown to either make payments to HMRC for

VAT owed or reclaim VAT if an excess has been paid.

Sharma and Ryan are the only two shareholders, each

investing $12,500$ of their own money into the business.

They also secured a bank loan for $80,000$ to be paid

back monthly in instalments of $1,000$ so add this to

your income in the first month. All the capital

invested was to be used to buy capital equipment to the

value of $105,000.$ Equipment bought was machinery of

$85,000$ and fixtures and fittings worth $20,000.$ Sharma

and Ryan also agreed an overdraft of up to $20,000$ at a

charge of $1\mathrm{.}5\%$ per month whenever their account was

overdrawn.

They planned to rent a small factory unit at a cost of

$25,000$ per year to be paid in equal monthly

instalments. They estimated that, in addition, monthly

rates would be $1,700.$

Sharma and Ryan planned to employ themselves along

with two other employees, but were aware of the fact

that money might be tight, so decided to pay

themselves the same salary as the other employees,

that being $19,000$ per year.

Other expenses were estimated to be:

Telephone

$300$ per $3$ months

Post

$50$ per month

Courier charges

$1,500$ per month

Advertising

$160$ per month

Additional adverts $500$ per quarter

Heat and light $500$ per month

Insurance

Sharma and Ryan were both $21$ when they attended the

Acorn programme run by Engaging Enterprise. They

were keen to learn and have since decided to act upon

the advice given during the $12$ weeks and set up a

business together.

They have decided on a new business called SIGNature

Ltd$.$ The business will manufacture plastic road signs for

builders, tourist attractions and local councils.

Sharma and Ryan have carried out substantial research

into potential sales volumes, set up costs and revenue

expenses. They have approached you to help them set

up and understand their first cash flow forecast. It is

important that they get it right as it will form part of the

business plan they are preparing to take to the bank

manager in order to try to secure a loan.

Task $3$

Sharma and Ryan have now been trading as SIGNature

Ltd for one year and again have approached you to

produce their year$-$end accounts.

You are to produce a trading, profit and loss account

and balance sheet based on the information provided.

Actual sales and purchases were as follows.

Other information you need in order to complete the final

accounts:

In their first year of trading Sharma and Ryan received

$2,080$ orders

Sharma and Ryan decided to depreciate their fixed

assets using a straight$-$line method at $10\%$ per year.

Closing stock was $12,000$

At the end of the year they owed $15,500$ to suppliers

and were owed $41,000$ from customers.

There was a balance of $17,160$ at the end of the year

in the bank

Sharma and Ryan had worked hard during the year and

so decided to pay themselves a dividend of $20,000$

each.

The following information alters and amends the initial

cashflow $-$ you are to use these figures for the final

accounts. Rent on their factory premises was $6\mathrm{.}50026,000$ per year$1,80018,0001,400$ per month

$(67,200)$

The telephone bill was $60$ per month and post was

$200720$ and $2,40010$ per order $(20,800)$

They advertised in a local magazine for the year at

the cost of $35$ per week and quarterly in a

specialist trade magazine at $5001,820$ and $2,0002,000$ per

quarter $(8,000)$

Insurance was $800$ per year.

Task $4$

Sharma and Ryan now want you to help them

understand their final accounts for SIGNature Ltd$.$ You

need to prepare a set of appendices to the accounts

which explain their profitability, liquidity and efficiency.

Your explanation should be entirely honest as only

Sharma and Ryan will see the comments you make.

Before you make your comments you will firstly need to

produce the following $^()$

Profitability

Gross profit $\%$ of sales

Net profit $\%$ of sales

ROCE

Liquidity

Current ratio

Acid tes$($t$)/($l$)$iquidity ratio

Efficiency

Debtors payment period

Creditors payment period

Rate of stock turnover

You are to explain what each ratio a measurement is of

and what the result means to Sharma and Ryan.

Explain the possible reasons for the ratio and the

significance of it to the business's overall financial

performance. Explain whether the ratio's show a good

or poor performance and then write a conclusion

summarising the overall performance of Sharma and

Ryan's first year of trading.