Assessment Instructions:
Read all the following questions carefully and write down your answers neatly and clearly in the spaces provided.
- What does desired net profit target mean?
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- If you have $100,000 to invest in a business and the current bank deposit rate is 5%, calculate the net profit target if the premium is 15% and your current rate of pay is $70,000.
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- Read the scenario below and answer the questions that follow.
You have $150,000 available for investing into your company. The risk premium for your organisation is 14%. Bank deposit rates available are:
- RaboDirect 6.40%,
- ING Direct 6.25%
- ANZ Online saver 6.00%
Choose and highlight one bank’s rate and then, based on this rate, calculate
- How much money would you have after a year of keeping $150,000 in the bank?
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- The minimum desired rate of return on investment
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- The minimum desired net profit target for the year to make investing in your company a worthwhile investment.
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- You need to decide whether you should invest your money in this new organisation or put it in a much safer investment such as a bank term deposit.
Explain what would be the reason behind your decision.
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- List four different operating budgets and describe their purpose.
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- What are the legal requirements to start a business and why are they important?
- Based on the following estimates for Leather Sole Ltd:
- The cash balance on 1 April is $75,000
- Sales revenues for the first six months of 20XX are estimated to be as follow:
January $2300,000
February $300,000
March $500,000
April $565,000
May $600,000
June $560,000
- 20% of all sales per month are for cash
- 70 % of all credit sales are collected within the month of sale
- 20% of all credit sales are collected in the month following the sale
- 7% of credit sales are collected two month after the sale
- Raw materials costs are equivalent to 20 % of the sales revenue for the next month
- Raw materials are always purchased and turned into finish goods in the month before they are sold
- 50 % of raw materials purchases are paid for with cash. The amount outstanding is settled in the next month
- Wages total $50,000 each month and are paid in the month they are incurred
- Budgeted operating expenses total $103,000, of which $ 3,000 is rent (prepaid in January).
- $15,000 in interest payments are made on 15 April
- Selling and administration expenses are approximately $25,00 per month, these are paid monthly
- On 10 April, new equipment will be purchased for $70,000 (with a $10,000 cash deposit, and then 12 monthly instalments starting on 1 May). The old equipment it is replacing is expected to be sold for $13,000 cash in mid-April.
Prepare:
- Schedule of cash receipts from sales in April
| Item | Description | Calculations | April 20XX |
| April cash sales |
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| April credit sales collected |
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| March credit sales collected |
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| February credit sales collected |
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| Total cash receipts | |||
- A schedule of cash payments from material purchases from April
| Item | Description | Calculations | April 20XX |
| March credit purchases |
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| April cash purchases |
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| Total cash payments | |||
- A cash budget for April
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- Complete the aged debtors schedule
Outstanding sales invoices for the week ending 30 April 2019 are shown as follows:
| Invoice date | Invoice number | Customer | Amount |
| 6/1/19 | 806 | K Gee | $ 326.40 |
| 26/02/19 | 849 | T Tyler | $ 416.85 |
| 17/3/19 | 884 | K Gee | $ 156.30 |
| 26/3/19 | 903 | M Sams | $ 562.30 |
| 6/4/19 | 921 | A Wolski | $ 318.65 |
- Prepare an aged debtors schedule for the week ending 2 May 2019
| Name | Current | 30+ | 60+ | 90+ |
- What action should be taken for each account?
| Customer | Action to be taken |
| K Gee | |
| T Tyler | |
| M Sams | |
| A Wolski |
- A business has the following results:
Statement of Income
| INCOME | ||
| Net Sales | $ 800,000 | |
| Other Income | $ 30,000 | |
| Total Income | $ 830,000 | |
| COST OF GOODS SOLD | $430,000 | |
| GROSS PROFIT | $ 400,000 | |
| OPERATING EXPENSES | ||
| Total selling expenses | 120,000 | |
| Total general expenses | 80,000 | |
| Total operating expenses | 200,000 | |
| NET INCOME BEFORE TAXES | $200,000 | |
| Income tax paid | 25,000 | |
| NET INCOME AFTER TAXES | $ 175,000 |
- Calculate and explain their gross profit margin for this business
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Calculation:
Explanation:
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- Calculate and explain the net profit margin for this business
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Calculation:
Explanation:
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- Calculate and explain the Return on Owner’s equity if owner’s equity equals $100 000 for this business
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Calculation:
Explanation:
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- Calculate and explain operating expense ratio for this business
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Calculation:
Explanation:
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- Calculate and explain the working capital ratio if:
Current assets = $40,000
Current liabilities = $12,000
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Calculation:
Explanation
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- Calculate and explain the acid-test/quick ratio if stock = $ 15,000
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Calculation:
Explanation:
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- Calculate and explain the debt ratio for this business.
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Calculation:
Explanation:
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- The following items were extracted from Optimum Pty Ltd financial statements.
Cash $40,000
Sales $840,000
Land and Buildings $400,000
Accounts payable $100,000
Accounts receivable $130,000
Capital $390,000
Cost of Sales $396,000
Inventory $120,000
Net profit after interest and tax $50,000
Long-term Loan $150,000
- Calculate the following:
- Total current assets
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- Total current liabilities
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- Working capital
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- Working capital ratio
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- Quick asset ratio
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- Calculate the following ratios for evaluating working capital efficiency:
- Receivables turnover
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- Receivables days
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- Payables turnover
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- Payable days
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- Inventory turnover
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- Inventory days
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- Prepare an evaluation of Optimum Pty Ltd working capital situation focusing on stock records and stock control.
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- Assess this cash flow budget and use the figures provided to decide if any variations/alternative plans or changes required? If so, what should they be?
| BUSINESS CASHFLOW FORECAST | |||
| JUL (Budget) | JUL (Actual) | Variance | |
| INFLOW (Receipts) | |||
| Sales | $ 8,000.00 | $ 6,000.00 | |
| Services | $ 5,000.00 | $ 3,500.00 | |
| Owners equity | $ 10,000.00 | $ 10,000.00 | |
| GST Collected | $ 1,300.00 | $ 950.00 | |
| TOTAL INFLOWS | $ 24,300.00 | $ 20,450.00 | |
| OUTFLOWS (Payments) | JUL (Budget) | JUL (Actual) | Variance |
| Stock | $ 3,000.00 | $ 4,000.00 | |
| Accounting fees | $ 300.00 | $ 300.00 | |
| Advertising | $ 250.00 | $ – | |
| Bank Fees | $ 20.00 | $ 20.00 | |
| Electricity | $ 250.00 | $ 200.00 | |
| Insurance | $ 100.00 | $ 100.00 | |
| Lease equipment | $ 450.00 | $ 450.00 | |
| Loan repayments | $ 1,000.00 | $ 1,000.00 | |
| Phones – mobile | $ 100.00 | $ 100.00 | |
| Post & stationery | $ 50.00 | $ 50.00 | |
| Repairs & maintenance | $ 230.00 | $ 400.00 | |
| Vehicle costs – fuel & maintenance | $ 300.00 | $ 300.00 | |
| Vehicle purchase/lease | $ 500.00 | $ 500.00 | |
| Wages | $ 4,000.00 | $ 5,000.00 | |
| TOTAL CASH OUTFLOWS | $ 10,550.00 | $ 12,420.00 | |
| OPENING BANK BALANCE | $ – | $ – | |
| Add Inflows | $ 24,300.00 | $ 20,450.00 | |
| Deduct Outflows | $ 10,550.00 | $ 12,420.00 | |
| CLOSING BANK BALANCE | $ 13,750.00 | $ 8,030.00 | |
Comments:
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- Identify principles for preparing balance sheets and their interpretation.
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- Identify principles for preparing profit and loss statements and their interpretation.
- Why is technology important in business? Small business technology trends can have a direct impact on small business.Undertake research and identify 2 small business tech trends.
