Financial Management Interim Assignment - Desklib

Get a projected statement of profit and loss for the first year of operations of an unnamed business of Mrs. Chiara. Learn about the total amount of capital available in hand, cost of goods sold, operating expenses, and more.

Financial Management
Interim Assignment

Given information:
Total amount of capital available in hand = € 450,000
Price per pound of nuts in retail in USA = $27.50
Discount offered to Chiara = 40%
Information relating to expenses:
Cost Per unit
Price per pound of nuts => Retail Price – Discount = $27.50 –
40%
$16.50 per pound
Freight $2.70 per pound
Local Packing and Shipping $3.00 per pound
Credit Card Charges 1.50% on total
sales through
credit card
Salaries $11,500 per
annum
Salary to additional assistant => $300 per month x 12 months $3,600 per
annum
Decorative Box 0.80 per 600
grams pack
Market Survey Expenditure € 5,000
Capital Expenditure:
Capital Expenditure
Refrigerator €4750
Website €8000

Projected Statement of Profit and Loss
For the first year of operations of unnamed business of Mrs.
Chiara
Particulars Note Amount in
(€)
Total Sales 1 125,610
Less: Cost of goods sold 2(b) (59,189)
Gross Profit 66,421
Less: Operating Expenses 3 (44,691)
Operating Income 21,730
Non-Operating and Others
- Preliminary Expenditure (5,000)
Profit before Tax 16,730
Less: Income Tax Expense (5,019)
Profit after Tax 11,711

Notes to Projected Statement of Profit and Loss:
1. Monthly Projected Income Statement:
Month 1 2 3 4 5 6 7 8 9 10 11 12 Total
Online Sales (in Kgs) (a) 40 46 54 62 73 83 98 112 132 151 178 200 1,229
Sale to Marco (b) 30 30 30 30 30 30 30 30 30 30 30 30 360
Total Sales 70 76 84 92 103 113 128 142 162 181 208 230 1,589
Revenue
=> (a) x €90 + (b) x
€41.67
4,850 5,390 6,110 6,830 7,820 8,720 10,07
0
11,33
0
13,13
0
14,84
0
17,270 19,250 125,61
0
Expenditure
Direct Material [2(b)] (2,607
)
(2,83
1)
(3,129
)
(3,42
7)
(3,837
)
(4,20
9)
(4,768
)
(5,28
9)
(6,034
)
(6,74
2)
(7,748) (8,567) (59,18
9)
Salaries (1,258
)
(1,25
8)
(1,258
)
(1,25
8)
(1,258
)
(1,25
8)
(1,258
)
(1,25
8)
(1,258
)
(1,25
8)
(1,258) (1,258) (15,10
0)
Rent (550) (550) (550) (550) (550) (550) (550) (550) (550) (550) (550) (550) (6,600)
Packing Charges (144) (162) (186) (210) (243) (273) (318) (360) (420) (477) (558) (624) (3,975)
Credit Card Charges =>
1.5% of Online Sales =
1.5% x €90 x (a)
(54) (62) (73) (84) (99) (112) (132) (151) (178) (204) (240) (270) (1,659)
Total Monthly Expenditure (4,614
)
(4,86
3)
(5,196
)
(5,52
9)
(5,987
)
(6,40
3)
(7,027
)
(7,60
9)
(8,441
)
(9,23
1)
(10,35
4)
(11,27
0)
(86,52
3)
Less: Depreciation &
Amortization expenditure
[Refer 3(a)]
(17,35
7)
Less: Preliminary
Expenditure
(5,000)
Profit before Tax 16,730
Less: Tax @ 30% (5,019)
Profit after Tax 11,711
Computation of selling price per kg for sale to Marco:
Price per box of 600 grams $25.00

Therefore equivalent price per kg => $25.00 *1000
/ 600
$41.67
2. Cost of goods sold:
a. Direct Material Cost per kilo:
Particulars Amount in
$
Amount in €
Selling Price in USA 27.50 Per
Pound
$27.50 x (€/$) 0.88 = 24.20 Per Pound
Less: Discount offered to Client => 40% of
$27.50
(11.00) Per
Pound
(9.68) Per Pound
Cost to Client 16.50 Per
Pound
14.52
Add: Freight 2.70 Per
Pound
2.38 Per Pound
Total Direct Material Cost 19.20 Per
Pound
16.90 Per Pound
(x) Pounds per Kilo 2.20462
Total Direct Material Cost 37.25 Per Kilo
(International Accounting Standards Board, 2003) As per IAS – 2, the cost of inventory should include all cost of
purchase, cost of conversion and other costs incurred in bringing the inventory to present location and condition.
Therefore freight is included in cost of direct materials.
The Exchange Rate is assumed to be (€/$) 0.88 for the purpose of computations
b. Monthly Statement of Cost of goods sold:
Month 1 2 3 4 5 6 7 8 9 10 11 12 Total
Online Sales (in
Kgs)
40 46 54 62 73 83 98 112 132 151 178 200 1,229
Sale to Marco 30 30 30 30 30 30 30 30 30 30 30 30 360
Total Sales 70 76 84 92 103 113 128 142 162 181 208 230 1,589
(x) Material Cost
(€)
37.25 37.25 37.25 37.25 37.25 37.25 37.25 37.25 37.25 37.25 37.25 37.25 37.25
Cost of Goods Sold (2,607
)
(2,83
1)
(3,12
9)
(3,42
7)
(3,83
7)
(4,20
9)
(4,76
8)
(5,28
9)
(6,03
4)
(6,742
)
(7,74
8)
(8,56
7)
(59,18
9)

Notes and Assumptions:
- It is assumed that the sales will increase at a growth rate of 16% per month till they reach 200 units at the
end of the year as per the results of market survey
- The sales of month 12 is rounded off to 200.
- Marco required 50 packets of 600 grams each per month => Requirement in Kgs = 50 packets x 600
grams = 30 Kgs.

3. Operating Expenses:
Particulars Amount in
€
Salaries:
Operating Staff
Packing Assistant => 300 x 12 months
11,500.
00
3,600.0
0
15,100.00
Rent => 550 x 12 months 6,600.00
Packing Charges
Packing Material => 360 packs x €0.80
Local Packing & Shipping => 1,229 Kgs x
€3.00
288.00
3,687.0
0
3,975.00
Credit Card Expense 1,659.00
Depreciation & Amortization Expenses. Refer
3 (a)
17,357.00
Total Operating Expenses 44,691.00
a. Depreciation & Amortization Expenses:
Particulars Computation Amount
in €
Depreciation on
Refrigerator
 (4,750 – 0) / 4 years 1,188.00 Per
annum
Amortization on Website  8,000 * (1,229 /
8,429)
2,000.00 Per
annum
Amortization of
Exclusivity
 88,000 * (1,589 /
9,869)
14,169.00 Per
annum
Total Depreciation 17,357.00 Per
annum
Notes and Assumptions:
- It is assumed that the tangible assets acquired have a useful economic
life which lasts only the period for which the exclusivity was obtained by
the client. (4 years)
- Since the upfront payment made for obtaining the exclusivity is
unavailable, it is assumed that the amount paid is $100,000 (or)
$100,000 x €0.88 = €88,000
- In case of intangible assets, no. of units sold is used as a base for
computation of amortization expense
- While online sale quantity is treated as appropriate for computing
amortization expense for the website, total sale quantity is treated as

appropriate for computing amortization expense of Exclusive Rights
obtained.
- It is further assumed that the refrigerator is depreciated on straight-line
basis. It is inherently assumed that there will be no salvage value left
after the end of useful economic life.
Total sales over life of exclusivity => 1,589 + {[(200 * 12) + (30 * 12)] * 3}
= 9,869 units
Online Sales over life of exclusivity > 1,229 + (200 * 12 * 3 years) = 8,492
units

Client has no requirement of any loan during first year after thorough analysis of cash flows. Hence no
interest expense will be incurred in year 1. The cash flow analysis statement is as follows:
Projected Cash Budget:
Month 0 1 2 3 4 5 6 7 8 9 10 11 12
Opening Balance 450,000 329,64
3
326,66
8
326,91
4
327,37
1
328,10
3
329,13
9
330,56
1
332,30
3
334,58
8
337,34
7
340,81
5
345,06
8
Cash Receipts
from Sales
0 0 4,796 5,328 6,037 6,746 7,721 8,608 9,938 11,179 12,952 14,636 17,030
Less: Cash
Payments
to Supplier (2,607) (2,831) (3,129) (3,427) (3,837) (4,209) (4,768) (5,289) (6,034) (6,742) (7,748) (8,567)
purchase of
refrigerator
(4,750)
payment for
exclusivity
(100,00
0)
payment for
website
(8,000)
payment for
market survey
(5,000)
payment for
salary
(1,258) (1,258) (1,258) (1,258) (1,258) (1,258) (1,258) (1,258) (1,258) (1,258) (1,258)
payment for
packing
(144) (162) (186) (210) (243) (273) (318) (360) (420) (477) (558) (624)
payment for
interest
towards payment
of rent
(550) (550) (550) (550) (550) (550) (550) (550) (550) (550) (550)
Closing Cash
Balance
329,643 326,66
8
326,91
4
327,37
1
328,10
3
329,13
9
330,56
1
332,30
3
334,58
8
337,34
7
340,81
5
345,06
8
360,21
5

Notes and Assumptions:
- It is assumed that the first payment was made to suppliers exactly 3
weeks before commencement of financial year so that the payment for
nuts required for first month (4 weeks) is paid at time 0. Later in every
subsequent month payment to the supplier for purchases of
succeeding month is assumed to be made at the end of first week of
the month (since the time taken for delivery is 3 weeks).
- It is assumed that expenses like rent and salaries which are accrued in
a month are paid in the first day of succeeding month.
- It is assumed that packing expenses are paid in the month in which the
nuts are sold.
The time line for receipts and payments in a typical month is assumed as
follows:
Transaction Cash flow
Day 1 1st week end Day 16 Month
End
Payment to Supplier -  - -
Cash receipts from Credit card
company
- - 
Cash receipts from Marco - - - 
Payment of Packing Charges  - - -
Payment of Salaries  - - -
Payment of rent  - -
Other information:
(Iasplus.com, 2017) As per IAS 38 – Intangible Assets, an Intangible Asset is defined
as an identifiable non-monetary asset without physical substance. As asset is a
resource controlled by the entity as a result of past events from which future
economic benefits are expected. Thus there are three critical attributes of an
intangible asset which are as follows:
 Identifiable
 Control (power to exploit the item commercially)
 Future economic benefits (such as revenue of reduction in costs)
The website and upfront fee towards exclusivity satisfied the conditions to be
recongnised as Intangible assets. Hence they are classified as Intangible Assets

References:
International Accounting Standards Board (2003). IAS 2 - Inventories. pp.2.10.
Iasplus.com. (2017). IAS 38 — Intangible Assets. [online] Available at:
https://www.iasplus.com/en/standards/ias/ias38 [Accessed 8 Dec. 2018].