Report on Faux Fashion Limited

This report is based on Faux Fashion Limited, which covers a review of annual accounts, costing, pricing, variance analysis, Capex appraisal, and budgeting. To help investors understand a company's performance, financial statements are prepared at the beginning of the financial year and made publicly available. The income statement, statement of financial position, statement of cash flows, and statement of changes in equity are the four commonly used financial statements.

“Faux Fashion Limited” Words: 2500

Table of Contents
List of Tables.............................................................................................................................................3
1) Review of Annual Accounts.............................................................................................................4
a) Purpose of Financial Statements................................................................................................4
b) Analysis of Income Statement.....................................................................................................4
c) Overview of accounting fundamentals.......................................................................................6
2) Costing and Pricing...........................................................................................................................9
a) Cost for single men’s black Faux leather jacket.......................................................................9
b) Total production overheads and calculation of an alternative total cost................................9
c) Difference between current costing and alternative total cost method and the pros and
cons of the two alternative approaches.............................................................................................9
3) Variance Analysis...........................................................................................................................11
a) Budget for April (using experienced labour)............................................................................11
b) Budget for May (using apprentice labour)................................................................................12
c) Recommendation........................................................................................................................13
4) Capex Appraisal..............................................................................................................................14
a) Payback Period...........................................................................................................................14
b) Accounting rate of return (ARR)................................................................................................14
c) Net Present Value (NPV)...........................................................................................................15
d) Internal Rate of return (IRR)......................................................................................................15
5. Budgeting.........................................................................................................................................17
a) Budget Forecast..........................................................................................................................17
b) Cash flow forecast......................................................................................................................18
References..............................................................................................................................................20

List of Tables
Table 1: Income Statement.....................................................................................................................5
Table 2: Ratio analysis.............................................................................................................................5
Table 3: Working capital cycle................................................................................................................7
Table 4: Liquidity Ratio.............................................................................................................................7
Table 5: Cost per unit...............................................................................................................................9
Table 6: Total cost under AAA costing...................................................................................................9
Table 7: Original budget.........................................................................................................................11
Table 8: Actual budget...........................................................................................................................11
Table 9: Flex budget...............................................................................................................................11
Table 10: Variance analysis..................................................................................................................12
Table 11: Actual Budget (May).............................................................................................................13
Table 12: Variance analysis (May).......................................................................................................13
Table 13: NPV.........................................................................................................................................15
Table 14: Budget Forecast....................................................................................................................17
Table 15: Cash Flow Forecast..............................................................................................................18

1) Review of Annual Accounts
a) Purpose of Financial Statements
Financial statements are prepared at the end of the financial year and are published for
the general public so that the investors can get the idea about the performance of a
company. There are four common financial statements which are income statement,
statement of financial position, statement of cash flows and statement of changes in
equity (Healy and Palepu, 2012).
a. Income Statement: Income statement identifies the profit and loss of a company
by subtracting revenues and expenses. It is helpful for the analysis of change in
income of the organization over the financial year (Brigham and Houston, 2012).
b. Statement of Financial position: This financial statement highlights the assets,
liabilities and equity held by a company. It is useful in identifying the liquidity risk
which can have an impact on the investing side of a company (Brigham and
Houston, 2012).
c. Statement of Cash flow: Statement of cash flow defines the inflow and outflow
of cash by dividing the function of the entities into operating activities, financing
activities and investing activities. Positive cash flows are said to have a good
impact on the stakeholders (Brigham and Houston, 2012).
d. Statement of Changes in equity: This statement identifies the changes in
equity side of the company by showing the impact of reserves, retained earnings
and any increased investments by the shareholders. It is helpful in identifying the
confidence if the investors ob a company (Brigham and Houston, 2012).
b) Analysis of Income Statement
The income statement of the Faux fashion Limited is shown in the table 1.

2015 2014
Sales revenue 470,000£ 460,000£
Cost of Sales 220,900£ 220,800£
Gross profit 249,100£ 239,200£
Distribution and selling expense 110,000£ 108,000£
Administration expense 9,000£ 8,000£
Operating profit 130,100£ 123,200£
Finance Expense 500£ 450£
Profit before tax 129,600£ 122,750£
Corporation tax 23,328£ 28,233£
Profit after tax 106,272£ 94,517£
Faux Fashion Limited
Income Statement
For the year ending 31st December, 2015
Table 1: Income Statement
Sales revenue of the company has grown by £10,000 for 2015 as compare to the
previous year which is showing that the company has increased its promotional
activities which can be identified from the increase in distribution expenses also. Gross
profit of the company has also increased £9,900 in the year 2015 which shows a growth
of 1% only in overall. The percentage increase in the gross profit can be seen in table 2.
Ratio analysis 2015 2014
Gross Profit Margin 53.0% 52.0%
Operating profit margin 27.7% 26.8%
Table 2: Ratio analysis
Operating profit is showing the increase of £6,900 because the expenses have also
increased. Overall operating profit margin is 27.7% which is good as compare to the
previous year. The expenditure section in table 1 collectively shows the increase of
£3,000 out of which £2,000 is contributed by distribution and remaining £1,000 by
administration expense. The profit of the company is highly dominated by the sale which
is only showing the increase of £10,000. The increase in sales with the low amount is
showing a very little increase in the gross profit margin which can be identified in table
2. It is also noted that the company has spend too much on expenses which has cut

down the operating profit margin from 53% to only 27.7% which is only 52% of the gross
profit margin.
c) Overview of accounting fundamentals
Profit and cash are different in nature. Although they at times considered similar, but
there is a core difference between them. Profit of a firm is calculated after the deduction
of expenses from the sales amount and is reported in the income statement. It is useful
for the stakeholders attraction towards the company and fro the stability in the market
(Bodie, Kane and Marcus, 2014). However, cash is the amount which is hold by a
company for the continuation of its operational activities and is reported in the current
assets side of the financial position. Positive amount of cash is necessary because
negative amount of cash for too long can create a risk of liquidity (Weil, Schipper and
Francis, 2013).
Working capital cycle can be defined as the time taken by current assets or the current
liabilities to turn into cash. It is not good for the company to have a high working capital
cycle as the value of money goes down with the time (Brigham and Houston, 2012). It
can be illustrated in the following diagram.

For the better understanding of the working capital cycle of the Faux Fashion Limited,
computations have been done in the table 3 as follows.
Receivable days Trade receivables/Credit sales*365 66
Payable days Trade payables/Cost of sales*365 107
Inventory days Inventory/Cost of sales*365 207
Working capital cycle Inventory days+Receivable days-Payable days 165
Working capital cycle
Table 3: Working capital cycle
It can be seen in the table 3 that the receivable days of the company is 66 which is
good. However, the inventory is outstanding for 207 days which is negative as the sales
value decreases with the passage of time. Overall the working capital cycle of the
company is showing positive results as the cash is recycled in 165 days.
The liquidity ratios are also calculated in order to analyse the stability of the company.
Liquidity ratios are helpful to identify the ability of the company to pay off its debts.
There are three types of liquidity ratios which includes current ratio, quick ratio and cash
ratio (Healy and Palepu, 2012). The computation for all the three ratios can be identified
in the table 4 as follows.
Current ratio Current assets/current liabilities 2.19
Quick ratio Current assets-Inventory/Current liabilities 0.90
Cash ratio Cash/Current liabilities 0.02
Table 4: Liquidity Ratio
Table 4 shows that the current ratio of the company is more than 2 which is considered
as the benchmark to measure the stability of the company through current ratio. It
indicates that the Faux fashion Limited has 2.19 assets to pay off its 1 liability. Quick
ratio; however, indicates that the company has o0nly 0.90 assets for every liability. It is
considered more reliable as compare to the current ratio as it only considers short term
current assets and totally ignores any inventory and prepaid. According to this ratio, the
company is in trouble. Cash ratio is also indicating the same situation as the quick ratio.
Therefore, it is recommended to Myla that she has to reduce its inventory days which
are calculated to be 207 in the table 3.

2) Costing and Pricing
a) Cost for single men’s black Faux leather jacket
Material cost 2 meter@£10 20£
1 zip @ £2 2£
Direct labour 1/2 hour@£8 per hour 4£
26£
Cost per unit
Total cost per unit
Table 5: Cost per unit
b) Total production overheads and calculation of an alternative total cost
Prod. Sundaries 0.10*3000 300£
Premises cost 100*20 2,000£
Prod.Supervisor 3000*1 3,000£
5,300£
78,000£
83,300£Total cost under AAA costing
Total overheads and Total cost under AAA method
Total overheads
Total variable cost
Table 6: Total cost under AAA costing
c) Difference between current costing and alternative total cost method and
the pros and cons of the two alternative approaches
The main difference between the current costing and alternative costing is the presence
of the fixed cost during the calculation of per unit cost. The current costing only
considers direct material, direct labour and variable overheads which are incurred on
the product at the time of production. Therefore, it does not give a clear picture about
the total cost which is applied on the product for the manufacturing. On the other hand,
alternative approach considers variable and fixed costs to compute the total effect of the
manufacturing activities which has been incurred on a single product during
manufacturing (Campbell, Datar, Kulp and Narayanan, 2014).
There are also some pros and cons attached with the two alternative approaches which
are named as activity based costing and process costing. The main advantage of the
ABC costing is that the costs are allocated according to the departments which are
easier to identify. However, the data can also easily manipulate in this system. Process

costing is helpful as the amount is allocated to the units according to the number of
processes from which the product passes. It is easy to use. However, the allocation is
done on the basis of equivalent units which can decrease the reliability of results (Bodie
et al, 2014).

3) Variance Analysis
a) Budget for April (using experienced labour)
i. Original Budget
Revenue 1,000£
Less: Direct Labour 200£
Less: Direct Materials 350£
Budgeted profit 450£
Original Budget (50 units)
Table 7: Original budget
ii. Actual Budget
Revenue 810£
Less: Direct Labour 144£
Less: Direct Materials 304£
Actual profit 362£
Actual Budget
Table 8: Actual budget
iii. Flex Budget
Revenue 900£
Less: Direct Labour 180£
Less: Direct Materials 315£
Flex profit 405£
Flex Budget(45 units)
Table 9: Flex budget
Variance analysis
The variance analysis for the month of April can be seen in the table 10 as follows.

Sales vol. variance Flex units-original units -5 (A)units
Sales Price Var. Actual Sales Rev - Flexed Budget Sales Rev 90-£ (A)
Direct Labour Eff. Var. (Std. Hours x Std. Rate) - (Actual Hours x Std. rate) 0.8£ (F)
Direct Labour Rate Var (Actual Hours x Std. Rate) - (Actual Hours x Actual Rate) 0
Direct Materials Qty Var. (Std. Qty x Std. Price) - (Actual Qty x Std. Price) 0.7 (A)meter 2
Direct Materials Price Var. (Actual Qty x Std. Price) - (Act. Qty x Act. Price) 0.45-£ (F)
Table 10: Variance analysis
Sales volume variance is showing unfavourable variance of 5 units which means that
the company has sold 5 less units as compare to the estimation. Sales price variance is
also negative as the company has earned less revenue for the 45 units in comparison
with the budgeted revenue. Direct labour efficiency is favourable as the actual hours
worked are less than the estimated labour hours. Labour rate variance is 0 as there is
no change observed in the standard labour hour rate and actual labour hour rate. Direct
material quantity variance is favourable as the less quantity of material is used for the
manufacturing of a bag. However, direct material price variance is negative as actual
price is higher than the standard price of material.
The above variances have the positive and negative impact in the profit of the company.
The adverse sales volume variance will have a negative impact on the profit as it shows
the low amount of the sales. The sales price variance will also decrease the profit as
the products are sold below their budgeted price which is adverse for the profit. Labour
efficiency variance will have a positive impact on the profit which means that the profit
will be increased and the material price variance will also help in the increment of the
profit. To sum up the effect of different variances on the profit it can be said, the
favourable variances will have a positive impact in the profit and the adverse variances
will decrease the profitability if the company.
b) Budget for May (using apprentice labour)
i. Actual Budget
Revenue 810£
Less: Direct Labour 189£
Less: Direct Materials 405£
Actual profit 216£
Actual Budget

Table 11: Actual Budget (May)
Variance analysis
The variance analysis for the month of May can be observed in the table 12 as follows.
Sales vol. variance Flex units-original units -5 (A)units
Sales Price Var. Actual Sales Rev - Flexed Budget Sales Rev 90-£ (A)
Direct Labour Eff. Var. (Std. Hours x Std. Rate) - (Actual Hours x Std. rate) 1.6-£ (A)
Direct Labour Rate Var (Actual Hours x Std. Rate) - (Actual Hours x Actual Rate) 1.4 (F)
Direct Materials Qty Var. (Std. Qty x Std. Price) - (Actual Qty x Std. Price) -1.4 (A)meter 2
Direct Materials Price Var. (Actual Qty x Std. Price) - (Act. Qty x Act. Price) 0.60-£ (A)
Table 12: Variance analysis (May)
In table 12 it can be seen that when the sales volume and sales price variance remains
same as of April. However, direct labour efficiency variance is now showing
unfavourable position because the actual hours are more than the standard hours.
Labour rate variance is showing favourable amount at per hour labour rate is cut down
from £8 to £6 in May. Direct material quantity variance is also unfavourable as the
actual quantity of the material used is increased in May. Direct material price variance is
also unfavourable as the actual price is increased as compare to the standard price of
material. The computed variances in the table 12 show some adverse and favourable
variances. It should be noted that all the favourable variances will increase the
profitability of the company which includes only direct labour rate variance. However, all
the remaining variances are adverse which decrease the profitability of the company.
c) Recommendation
There are certain factors which can have an impact on the different variances which
have been calculated in the above sections. Sales volume variance can be increased or
decreased with the number of units sold, sales price variance can be changed with the
change in the prices, labour efficiency and rate variance can be increased or decreased
with the change in labour hours or labour rate and similar case will be observed with the
material quantity and material price variance. It is recommended to Myla on the basis of
the above calculations that the experienced labour should be used in operations as the
profit is high and most of the variances are favourable also.

4) Capex Appraisal
a) Payback Period
Payback period defines the amount of the time in which the total investment of the
project can be recovered. It is a simple method used for the capital budgeting analysis
due to which it is also becomes less reliable. It also does not contain the effect of the
time value of money which us necessary of the computations. It is because the value of
the currency declines at the end of the project life. Due to these drawbacks, it is not
frequently used by the companies for the investing decisions (Horngren, Sundem,
Schatzberg and Burgstahler, 2013). Following are the calculations of the payback
period for the given investment.
Payback
period
3years+(20,000/60,000*12months
) 3.40
The payback period value of the project is calculated to be 3.4 which indicate that the
invested amount will be recovered in 3 years and 4 months. It means that the actual
payback period will be less than the life of the project. Therefore, according to the
computations, the project should be accepted.
b) Accounting rate of return (ARR)
Accounting rate of return is basically calculated for the analysis of the profit from the
investment in the project. It is easier to calculate and can be easily understood.
However, it also ignores the effect of time value of money and also the profit tends to
change for the years (Horngren et al, 2013). The computations of ARR can be seen as
follows.
ARR
Average Profit/Average
Investment*100% 11.41%

The computed value of ARR is 11.41% which is very low. It indicates that the
investment will bring in the return of 11.41% if it is accepted. According to the
computations it is recommended that the project should be declined by Myla.
c) Net Present Value (NPV)
Net present value of the project can be calculated by subtracting all the inflows from the
outflows considering the impact of time value of money. It is the most reliable technique
to analyse the feasibility of the project. If the project shows positive NPV than it should
be accepted otherwise the project should be rejected. It gives reliable results therefore;
it is used by number of companies. However, due to the complex operations, some
companies are reluctant to this technique also (Horngren et al, 2013). The NPV of the
project of Faux Foundation is computed as follows.
Year Cashflow Discount factor @ 10% PV
0 200,000-£ 1.000 200,000-£
1 60,000£ 0.909 54,540£
2 60,000£ 0.826 49,560£
3 60,000£ 0.751 45,060£
4 60,000£ 0.683 40,980£
5 60,000£ 0.621 37,260£
27,400£NPV
Table 13: NPV
The NPV of the project is positive which means that the company should accept this
project.
d) Internal Rate of return (IRR)
Internal rate of return can be defined as a rate on which the NPV of a project becomes
zero. It is the second best choice for checking the feasibility of the project as it identifies
that should be the rate used for capitalization. It provides reliable results and also
considers the discounting concept which is necessary for the efficient computation.
However, for some people, it is harder to understand and calculated which can be count
as disadvantages of this technique (Horngren et al, 2013). The IRR of the given project
is computed below.

IR
R A+NPV(A)/NPV(A)-NPV(B)*(B-A) 6.71%
The IRR of the project is 6.71% which is less than the cost of capital of 10%. Therefore,
the project should be rejected on the basis of IRR calculation.
Recommendation
According to the computation of the various feasibility methods, it is recommended that
the Myla should accept the project. The recommendation is highly dependent on the
result of NPV which is showing positive results for the project.Net Present Value (NPV)
is the best measure to identify the feasibility of the project as it considers all the aspects
which are involved in the decision making of the acceptance or rejection of project.
Therefore, as the result for the NPV is good, the project should be accepted.

5. Budgeting
a) Budget Forecast
SALES (£) Jan Feb Mar April May June July Aug Sept Oct Nov Dec Total
Independents sales 30,000£ 40,000£ 40,000£ 40,000£ 50,000£ 40,000£ 40,000£ 40,000£ 50,000£ 60,000£ 50,000£ 25,000£ 505,000£
Cost of sales 13,500£ 18,000£ 18,000£ 18,000£ 22,500£ 18,000£ 18,000£ 18,000£ 22,500£ 27,000£ 22,500£ 11,250£ 227,250£
Gross Profit 16,500£ 22,000£ 22,000£ 22,000£ 27,500£ 22,000£ 22,000£ 22,000£ 27,500£ 33,000£ 27,500£ 13,750£ 277,750£
Gross profit Margin 55% 55% 55% 55% 55% 55% 55% 55% 55% 55% 55% 55% 55%
Dept. Store sales 5,000£ 12,000£ 12,000£ 15,000£ 15,000£ 5,000£ 16,000£ 18,000£ 18,000£ 20,000£ 30,000£ 10,000£ 176,000£
Cost of sales 2,750£ 6,600£ 6,600£ 8,250£ 8,250£ 2,750£ 8,800£ 9,900£ 9,900£ 11,000£ 16,500£ 5,500£ 96,800£
Gross Profit 2,250£ 5,400£ 5,400£ 6,750£ 6,750£ 2,250£ 7,200£ 8,100£ 8,100£ 9,000£ 13,500£ 4,500£ 79,200£
Gross profit Margin 45% 45% 45% 45% 45% 45% 45% 45% 45% 45% 45% 45% 45%
online sales 1,000£ 1,500£ 2,000£ 3,000£ 3,000£ 4,000£ 4,000£ 5,000£ 5,000£ 5,000£ 3,000£ 4,000£ 40,500£
Cost of sales 200£ 300£ 400£ 600£ 600£ 800£ 800£ 1,000£ 1,000£ 1,000£ 600£ 800£ 8,100£
Gross Profit 800£ 1,200£ 1,600£ 2,400£ 2,400£ 3,200£ 3,200£ 4,000£ 4,000£ 4,000£ 2,400£ 3,200£ 32,400£
Gross profit Margin 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80%
Total
Total sales 36,000£ 53,500£ 54,000£ 58,000£ 68,000£ 49,000£ 60,000£ 63,000£ 73,000£ 85,000£ 83,000£ 39,000£ 721,500£
Total cost of sales 16,450£ 24,900£ 25,000£ 26,850£ 31,350£ 21,550£ 27,600£ 28,900£ 33,400£ 39,000£ 39,600£ 17,550£ 332,150£
Total gross profits 19,550£ 28,600£ 29,000£ 31,150£ 36,650£ 27,450£ 32,400£ 34,100£ 39,600£ 46,000£ 43,400£ 21,450£ 389,350£
Total gross profits margin 54% 53% 54% 54% 54% 56% 54% 54% 54% 54% 52% 55% 54%
Expenses
Salaries 5,000£ 5,000£ 5,000£ 5,000£ 5,000£ 5,000£ 5,000£ 5,000£ 5,000£ 5,000£ 5,000£ 5,000£ 60,000£
Rent 3,000£ -£ -£ 3,000£ -£ -£ 3,000£ -£ -£ 3,000£ -£ -£ 12,000£
Business Rates 300£ 300£ 300£ 300£ 300£ 300£ 300£ 300£ 300£ 300£ -£ -£ 3,000£
Gas & Electricity -£ -£ 900£ -£ -£ 900£ -£ -£ 900£ -£ -£ 900£ 3,600£
Insurance 1,200£ -£ -£ -£ -£ -£ 1,200£ -£ -£ -£ -£ -£ 2,400£
Other expenses 400£ 400£ 400£ 400£ 400£ 400£ 400£ 400£ 400£ 400£ 400£ 400£ 4,800£
Depreciation 3,433£ 3,433£ 3,433£ 3,433£ 3,433£ 3,433£ 3,433£ 3,433£ 3,433£ 3,433£ 3,433£ 3,433£ 41,196£
Operating profit 6,217£ 19,467£ 18,967£ 19,017£ 27,517£ 17,417£ 19,067£ 24,967£ 29,567£ 33,867£ 34,567£ 11,717£ 262,354£
Finance cost -£ -£ 5,000£ -£ -£ 5,000£ -£ -£ 5,000£ -£ -£ 5,000£ 20,000£
Profit before tax 6,217£ 19,467£ 13,967£ 19,017£ 27,517£ 12,417£ 19,067£ 24,967£ 24,567£ 33,867£ 34,567£ 6,717£ 242,354£
Corporation tax -£ -£ -£ -£ -£ -£ -£ -£ 20,000£ -£ -£ -£ 20,000£
Net Profit 6,217£ 19,467£ 13,967£ 19,017£ 27,517£ 12,417£ 19,067£ 24,967£ 44,567£ 33,867£ 34,567£ 6,717£ 262,354£
Monthly budgeted Income Statement for Faux Fashions Ltd. (Year Ending 31st December 2017)
Table 14: Budget Forecast
The budget in the table 14 shows that all the three aspects of the company are showing
increased amount of the profit at the end of the year 2017 which is positive for the
company. The expenses are similar for all the three types of businesses and the gross
margin is 55% for independent customer, 45% for the department store customers and
80% for the online customers. It can also be seen that the terms are different for each
gross margin allocation due to which the profits for all the three components of business
differs from each other.
It can also be seen in the table 14 that the total gross profit margin is different for each
month because the sales of the company differ every month. The total sale is the sum

of the three sector sales which are fluctuating. It is also impacting the fluctuation in the
total sales which is ultimately resulting in the fluctuated gross profit margin.Net profit at
the end of the 2017 is showing positive value which is indicating that if Myla follows the
same budget, the performance of the Faux fashion Limited can be improved which is
good for the stability of the company.
b) Cash flow forecast
The cash flow forecast of the company for the year 2017 can be seen in the table 15 as
follows.
Cash Inflow Jan Feb Mar April May June July Aug Sept Oct Nov Dec
Sales reciept 30 days 22,000£ 30,000£ 40,000£ 40,000£ 40,000£ 50,000£ 40,000£ 40,000£ 40,000£ 50,000£ 60,000£ 50,000£ 502,000£
Sales recipt 60 days -£ -£ 5,000£ 12,000£ 12,000£ 15,000£ 15,000£ 5,000£ 16,000£ 18,000£ 18,000£ 20,000£ 136,000£
Sales reciept cash basis 1,000£ 1,500£ 2,000£ 3,000£ 3,000£ 4,000£ 4,000£ 5,000£ 5,000£ 5,000£ 3,000£ 4,000£ 40,500£
Other cash inflows -£ -£ -£ -£ -£ -£ -£ -£ -£ -£ -£ -£ -£
Total cash Inflow 23,000£ 31,500£ 47,000£ 55,000£ 55,000£ 69,000£ 59,000£ 50,000£ 61,000£ 73,000£ 81,000£ 74,000£ 678,500£
Cash Outflow
Direct labor 6,580£ 9,960£ 10,000£ 10,740£ 12,540£ 8,620£ 11,040£ 11,560£ 13,360£ 15,600£ 15,840£ 7,020£ 132,860£
Direct materials -£ 9,870£ 14,940£ 15,000£ 16,110£ 18,810£ 12,930£ 16,560£ 17,340£ 20,040£ 23,400£ 23,760£ 188,760£
Salaries 5,000£ 5,000£ 5,000£ 5,000£ 5,000£ 5,000£ 5,000£ 5,000£ 5,000£ 5,000£ 5,000£ 5,000£ 60,000£
Rent 3,000£ -£ -£ 3,000£ -£ -£ 3,000£ -£ -£ 3,000£ -£ -£ 12,000£
Business Rates 300£ 300£ 300£ 300£ 300£ 300£ 300£ 300£ 300£ 300£ -£ -£ 3,000£
Gas & Electricity -£ -£ 900£ -£ -£ 900£ -£ -£ 900£ -£ -£ 900£ 3,600£
Insurance 1,200£ -£ -£ -£ -£ -£ 1,200£ -£ -£ -£ -£ -£ 2,400£
Other expenses 400£ 400£ 400£ 400£ 400£ 400£ 400£ 400£ 400£ 400£ 400£ 400£ 4,800£
Finance cost -£ -£ 5,000£ -£ -£ 5,000£ -£ -£ 5,000£ -£ -£ 5,000£ 20,000£
capital repayment 10,000£ 10,000£ 10,000£ 10,000£ 40,000£
Corporation tax -£ -£ -£ -£ -£ -£ -£ -£ 20,000£ -£ -£ -£ 20,000£
Total cash Outflow 16,480£ 25,530£ 46,540£ 34,440£ 34,350£ 49,030£ 33,870£ 33,820£ 72,300£ 44,340£ 44,640£ 52,080£ 487,420£
Reconcilaiation -£
Opening cash balance 5,000£ 11,520£ 17,490£ 17,950£ 38,510£ 59,160£ 79,130£ 104,260£ 120,440£ 109,140£ 137,800£ 174,160£ 874,560£
Net cash flow 6,520£ 5,970£ 460£ 20,560£ 20,650£ 19,970£ 25,130£ 16,180£ 11,300-£ 28,660£ 36,360£ 21,920£ 191,080£
Closing cash balance 11,520£ 17,490£ 17,950£ 38,510£ 59,160£ 79,130£ 104,260£ 120,440£ 109,140£ 137,800£ 174,160£ 196,080£ 1,065,640£
Monthly Cashflows statement for Faux Fashion Ltd. (Year Ending 31st Dec. 2017)
Table 15: Cash Flow Forecast
Table 15 shows that the net cash flow of the company is showing positive figures for
throughout the year 2017. It can be seen that the inflows of the company are increasing
on a continuous basis which indicates that the company is likely to perform positively in
the year 2017. The cash flow forecast is done by considering the values of the sales of
online store, independent customers and department store customers on the basis of
their credit terms. In table 14 it can be seen that the total profit before tax is £242,354
and table 15 shows that the forecasted inflow at the end of 2017 is £191,080. It means
that the remaining amount will be related to the receivables as the cash flow purely

deals with the cash values. The positive amount of cash flow means good performance
of the company. Although the profit is also necessary for the measurement of the
performance, cash flow is better measure as it defines the performance of the firm in
short term basis.
It can be identified in the table 15 that the cash flow is positive for the year 2017.
However, it can be improved by taking certain measures. The cost of direct material and
direct labour is high which is resulting in the low inflow. It is recommended to Myla that
she should try to cut down the cost of these items by using the bargain power so that
the inflows can be increased at the end of the year 2017. It is also recommended that
the same procedures should be followed in future also as the results are better with
these operations.

References
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