1. Background You have been employed as financial controller from 1.12.2021 of a small family-owned company. In the past there has really been no financial management but now that the founder's daughter took over as CEO she wants proper procedures and reports. The company has a board of directors with three external board members plus two representatives of the owning family. The company imports electronic equipment from South Korea and Japan and sells that to distributors. There are no retail sales of the products directly to customers, but there is a service department selling spare parts online to consumers and repair shops. The company is organized into three divisions: Audio (2 salespersons), Video (1 salesperson) and Spares (1 salesperson). The purchasing is done by one person and you are in administration. The CEO is also a full-time employee. Business is going acceptably but there is a slight concern that the brands represented may not be at the spearhead of technology. The CEO is actively looking for new brands to sell, but that is likely to have an effect in 2024, earliest. Liquidity has been poor during the last year. 2. Numerical data The income statement and balance sheet for 2021 and 2022 (forecast) can be found below. The company has prepared no operating budget nor any cash flow budgets in the past. Arcada Imports Ltd Financial Information 000 of euros 2021 2022 INCOME STATEMENT Sales 2087 2096 Cost of goods sold - 1461 - 1467 Gross profit 626 629 Payroll costs Other Operating expenses Depreciation Interest expense - 317 - 297 - 117 - 137 - 125 - 125 - 83 - 79 Profit before tax - 9 Income taxes Net profit BALANCE SHEET - 16 1 17 - 2021 - 9 2022 2. Numerical data The income statement and balance sheet for 2021 and 2022 (forecast) can be found below. The company has prepared no operating budget nor any cash flow budgets in the past. Arcada Imports Ltd Financial Information 000 of euros 2021 2022 INCOME STATEMENT Sales 2087 2096 Cost of goods sold - 1461 - 1467 Gross profit 626 629 Payroll costs Other Operating expenses Depreciation Interest expense - 317 - 297 - 117 - 137 - 125 - 125 - 83 - 79 Profit before tax - 9 Income taxes Net profit BALANCE SHEET - 16 1 17 - 2021 - 9 2022 BALANCE SHEET 2021 2022 ASSETS Office equipment 500 375 Annual depreciation 125 Goods for sale in inventory 876 937 Spare parts in inventory 158 212 Acc. Receivables 442 458 Prepaid expenses 132 77 Cash equivalent 152 41 2260 2100 LIABILITIES Share capital 100 100 Retained earning 69 59 Long-term loans 1500 1300 Annual amortization 200 Acc. Payable 390 440 Accrued expenses 113 89 Other short-term debt 88 112 2260 2100 2022 Sales in 000 of Audio Video Spares Total January 100 79 13 192 February 113 78 9 200 March 107 74 11 192 April 111 92 7 210 May 109 67 9 185 June 77 52 July 0 0 August 36 22 September 85 72 October 112 78 November 121 98 December 135 138 1106 850 24227214 13 142 4 18 76 179 197 19 238 8 281 2096 3. The budget Your first task is to prepare a master budget (operating budget, balance sheet and cash flow budget) for 2022. The budget may of course be partly based on the figures from previous years but all budget numbers and underlying assumptions must be briefly discussed and documented. Where you lack data for the budget, carry out research and try to come up with sensible numbers that you can explain. Be sure to include recommendations and action points in the documentation, if you come up with any. 4. The proposed financial report Secondly, prepare a proposal for a financial report for the company, in particular the Board. Prepare a template (a model) of the January 2022 monthly financial report, using January 2022 budget data, leaving the actual outcomes blank. Remember to include all relevant financial and non-financial information, but without drowning the reader in details. The report must give the Board all necessary information for evaluating the performance of the company. 5. Grading notes The assignment gives a maximum of 40 points as follows: - documented budget assumptions with discussion and explanations 8p - a sensible and realistic operating budget 8p - a balance sheet that balances and ties in with the other parts 8p - a realistic monthly cash flow budget that ties in with the others 8p - reporting structure and template 8p Please note that Excels that are incomprehensible (impossible for me to understand) will get no points! Late submissions will get o points.