Question 1 (8 marks)

Wellington Design Services

Statement of Profit or Loss

for the year ending

Income

Fees Revenue

Rent Revenue

Expenses

Depreciation

Motor vehicle expenses Other expenses               Salaries expense             Supplies used                  Electricity

Overhead expense          Administrative expenses Advertising incurred       Net Profit

Question 2 (3 marks)

The Statement of Profit or Loss informs management of the financial performance of the entity, providing a summary of the income, expenses and overall net profit or loss for a particular period .  If management         review the Statement of Profit or Loss in conjunction with the Statement of Profit or Loss from previous       financial periods they can then perform comparative (ratio) analysis and identify trends .  This information   may be useful in negotiating prices with suppliers of goods and services and may also assist in the planning or budgetary process.

Question 2

Archer Pty Ltd        Statement of Cash Flow

for the year ending 30 June 2019 Cash Flow from Operating Activities

Cash receipts from customers

Cash paid to suppliers

Salaries paid

Expenses paid

Interest paid

Net Cash Flow from Operating Activities Cash Flow from Investing Activities          Proceeds from sale of equipment             Proceeds from sale of vehicles                  Purchase Property, plant and equipment Net Cash Flow from Operating Activities Cash Flow from Financing Activities          Proceeds of share issue

Loan Repayment

Dividends paid

Net Cash Flow from Financing Activities

Net Cash Flow

Cash at beginning

Cash at end

(8 points)

784,000

(456,000)

(48,000)

(105,600)

(1,500)  

172,900

36,000

28,800

(120,000)  

(55,200)

60,000

(8,000)

(110,400)

(58,400)  

59,300

(25,000)  

34,300

Question 4 (3 marks)

Cash flows from investing activities relate to acquisition and disposal of non-current assets and other investments that are not included in cash equivalents. Businesses need to invest in assets to generate returns. From the Statement of Cash Flow it can be seen that the entity sold items of equipment and  vehicles and purchased new equipment.

It is common that the cash flow from investing activities have a negative cash outflow because businesses are more commonly purchasing and updating assets as they age.  Often selling prices obtained for assets  that no longer have a productive life are considerably lower than the cost to purchase new replacement   assets.

The CEO should be more alarmed if the net cash flows from operating activities shows net cash outflows for a number of reporting periods.  This may mean that the company will have insufficient cash flow to not        only meet operating activities but to also assist in meeting investing and financing opportunities.  This can    impact on liquidity and if not amended may result in insolvency.

Question 5 (8 marks)

Brockbank Builders Ltd

Cash Budget for the months of May and June 2019

May                  June

Total Receipts

Less Payments for purchases March

April

May

Total cash purchases less other payments Selling Expenses        Admin Expenses        Finance Expenses      Equipment

Loan Repayment

Interest due

Total Cash Payments Net Cash

add cash at beginning Cash balance at end

78,100

8,250

48,750

Workings: Budgeted cash receipts for the months of May and June 2019

Schedule of Cash Receipts

May

13,200

52,800

12,100

71,500

Total Receipts

78,100          68,200

Question 6 (3 marks)

According to the Cash Budget prepared in part (a), Brockbank will have $9,900 cash available in May which is above their nominated cash balance, however, in June, the cash balance will fall below the required         minimum cash holdings by $1,625 due to the payment of the loan and interest due .  One recommendation would be to arrange long term financing to purchase the new equipment in May rather than purchase it     using cash.  They will then be in a better cash position to pay the loan and interest due in June.                     Alternatively, should they purchase the equipment using cash, this will result in the cash position falling      below the required threshold in June.  Given that the cash balance is still positive, but is below the               minimum cash requirements it would be advisable that Brockbank negotiate to obtain and overdraft.  This would then enable them to access a line of credit should they need additional financing .

Question 7 (8 marks)

Kitchen Wizz     

(a)        Selling Price                                                                    (i)

7ess: Variable Manuf costs

Variable Marketing costs

Unit contribution margin                                             (ii)

Contribution margin ratio (ii) ÷ (i)

(b)        Fixed costs (120,000+360,000)                                   (iii)

Contribution margin                                                     (ii)

Breakeven in units (iii) ÷ (ii)

Breakeven in dollars (24,000 x $60)

(c)        Fixed costs & profit (480,000+45,000)                      (v) Contribution margin                                                     (ii) Breakeven units (v) ÷ (ii)

Contribution margin                                                     (ii)

Breakeven units                                                             (vii)

New production – Breakeven (28,000 – 23,000)     (viii)

Net profit (5,000 x contribution margin 20)

$60

(28)

(12)

$20

33%

$480,000

$20

24,000

$1,440,000

525,000

$20

26,250

460,000

20

23,000

5,000

10,000

Question 8 (3 marks)