1 - Introduction Bach Company is used in a simulation exercise, carried out in teams. It is intended to give realistic training in the use of accounting and financial statements for decision making, use of concepts, language and the preparation of financial documents. To this end, the participants in the simulation are expected to prepare statements of financial position balance sheets, income statements and cash flow budgets/statement of cash flows deriving from their decisions. All decisions, notably production and sourcing volumes, are made on a yearly basis and, once decided on, are not modifiable. Although each team decides on its intended sales volume (and all corollary decisions to make this estimation materialize) the actual volume of sales is not selected by the team and is determined externally, for each team, by the instructor. 2 - Your company and its market (each firm operates under these conditions) On 1 January X7, each team takes responsibility for the management of a firm called Bach-n, where n is the identifier of the team. On day 1 of period X7, all Bach Co firms in the simulation are identical to all the other ones. Each firm is a rather small-sized business. It designs, Chapter 3 - Financial Statements: Interrelations and Construction - p. 5/10 assembles and sells hairdryers on a limited domestic market. At the beginning of the simulation, the market is shared equally, between five companies, all of similar size.! The overall market for the year X7 is estimated to be about 500,000 units (see endnote 6). It is reasonable to anticipate that the total market size will increase or decrease, beyond X7 at a trend average rate of about x% per year (where x is decided by the instructor), but this will depend on the decisions taken by each firm in such matters as the selling price and its evolution for the firm, advertising and marketing expenses and so on. The market is extremely sensitive to prices and to marketing expenses. In a downmarket, for example, the firm with the highest marketing and sales expenses might see its market share grow, and, maybe, even its sales volume grow, even if the overall market is shrinking. 3 - Manufacturing equipment (same initial conditions apply to each firm) On the opening date (1 January X7), the production capacity of each firm consists of nine assembly lines. Each one can assemble a maximum of 10,000 dryers per year. An additional assembly line would represent an investment of 50,000 CU. It would be depreciated over five years using the straight-line method, which implies a yearly depreciation expense of 10,000 CU for each new line acquired. Old lines, in this fictitious world with no inflation, were acquired, at different times, at the same price of 50,000 CU per line. They have been depreciated using the straight-line method on the basis of a useful life of 5 years. The existing equipment (nine assembly lines) is broken down, for each company, as follows (values are in thousands of CU): Years Gross value # of lines 2 operated 4 years Accumulated Depreciation (2 x 40) Net book value (2 x 10) (2 x 50) 3 3 1 Lines which have already operated for 3 years 2 years 1 year Their accounting book value is therefore (3 x 50) (3 x 50) 50 (3 x 30) (3 x 20) 10 (3 x 20) (3 x 30 40 Each company may invest (on 1 January of each year) in as many new assembly lines as it feels is necessary to achieve its business plan. Each new assembly line is operational immediately in the period of purchase. All purchases are assumed to take place at the beginning of the period and therefore a new line increases the capacity of production by 10,000 units. Once an assembly line is fully depreciated, it is scrapped and has neither residual value nor production capabilities. 4 - Inventories (same initial conditions apply to each firm) Each firm acquires from outside suppliers the motors and parts, which enter into the assembly of the hair dryers. There is no risk of shortage of motors or parts and there is no competition to access the parts and motors markets. The motors are purchased for a cost of 8 CU per unit in X7 (each dryer requires one motor). The various other parts are acquired at a cost of 10 CU in X7 for a set of parts allowing the assembly of one dryer. The total material cost is therefore 18 CU for each hairdryer. The number of teams in the simulation will, in fact, vary according to the number of participants. The average quantity of units potentially sold by any firm is always 100,000 in the first period. Thus the market potential in period X7 is equal to the number of teams multiplied by 100,000 units. On 1 January X7, each company holds an inventory on hand of motors and parts, which allows the production of 10,000 hairdryers without any additional purchases. In addition, each company has 5000 finished dryers in inventory, ready for delivery, whose unit direct cost (materials and labor) amounts to 27 CU, calculated as follows: 10 Motor, per unit Parts, per unit Direct labor Annual salary cost of one worker Number of dryers made in a year (per worker) ---> Labor cost of one dryer Total cost 18,000 CU 2,000 27 5 - Personnel (same initial conditions apply to each firm) As of 1 January X7, fifty employees are working on the production lines in each firm. Each worker can normally assemble up to 2,000 hairdryers in a year. As far as production is concerned, each company can hire additional personnel or dismiss redundant workers. Every dismissal must first be notified to an inspector from the Ministry of Labor, who may refuse the lay off, and will be subject to the payment to the worker of a cash indemnity equivalent to four months of salary. No social charges will be applied to this indemnity. Dismissals are presumed to take place at the beginning of the period in which they take place. (The indemnity is consequently based on the salary before any increase.). In X7 the minimum annual salary is 12,000 CU per assembly worker. In addition to the salary, the employer must pay social charges (health care, retirement, unemployment, vacations, etc.) amounting to 50% of the employee's remuneration. Thus the total labor cost incurred by the firm is 18,000 CU per year for each employee. In the second period (X8), the management of each company is free to raise the base pay by whichever amount it feels is necessary. Management, selling and administrative personnel as a whole receive a total remuneration amounting to 200,000 CU per year in X7. Once social charges are added at the rate of 50%, the payroll cost to the employer for management, selling and administrative personnel is 300,000 CU. This category of personnel will benefit from any percentage increase granted to production workers. Thus, the per person payroll cost for both assembly production personnel and management, selling and administrative personnel would increase in a firm, by the exact same proportion if a raise were decided by management. The management, selling and administrative personnel fulfills essential functions in the company and cannot be dismissed, regardless of the level of activity. Unlike the manual labor used in assembly work, this category of personnel uses a lot of computerized and automated routines and could handle a significant increase in the workload without requiring any new hiring. 6 - Financing (same initial conditions apply to all firms) The opening balance sheet shown below indicates that the shareholders have paid in 250,000 CU of share capital and that the company has realized profits in the past since the accumulated retained earnings amount to 110,000 CU. A debt of 200,000 CU was contracted in the first days of X4 with interest payable at the annual rate of 8%. It is repayable on 31 December X8. The interest is due every twelve months on the Chapter 3 - Financial Statements: Interrelations and Construction - p. 7/10 last day of the accounting period. The amount of any new (medium- or long-term) debt a firm may require for its planned activities would have to be negotiated in light of justified needs. The banker(s) or the shareholders must pre-approve any request for additional debt financing or issuance of new capital. Their final decision can only be taken after they have been provided with the firm pro forma financial statements and they have been able to review the financial situation of the company. *Temporary' financial needs can be covered by short-term overdrafts granted by the bank. Interest is charged at the rate of 10% on the amount of overdraft calculated on the last day of the accounting period and is payable immediately. Balance sheet at 31 December X6 (before appropriation of the X6 earnings by the General Assembly) (000 CU) Shareholders' equity and liabilities Shareholders' equity 210 Capital 250 Accumulated retained earnings 110 Net income X6 (to be appropriated in X7) 90 Assets Fixed assets Manufacturing equipment (net) Gross value: 450 Accumulated depreciation: -240 Current assets Inventories Components and parts (18 x 10,000) Finished products (27 x 5,000) Accounts receivable Cash at bank Total Liabilities 180 Debt 8% X4 (principal due on 31/12/X8) 135 Accounts payable 350 Income tax payable 70 945 Total 200 235 60 945 Balance sheet at 31 December X6 (before appropriation of the X6 earnings by the General Assembly) (000 CU) Shareholders' equity and liabilities Shareholders' equity 210 Capital 250 Accumulated retained earnings 110 Net income X6 (to be appropriated in X7) 90 Assets Fixed assets Manufacturing equipment (net) Gross value: 450 Accumulated depreciation: -240 Current assets Inventories Components and parts (18 x 10,000) Finished products (27 x 5,000) Accounts receivable Cash at bank Total Liabilities 180 Debt 8% X4 (principal due on 31/12/X8) 135 Accounts payable 350 Income tax payable 70 945 Total 200 235 60 945 7 - Other purchases and external expenses (yearly amounts, applicable to each firm) Each firm rents its factory buildings for 300,000 CU per year. (The offices of the administration and sales team are generously provided for free by one of the firm's major shareholders). Property taxes (not income related) amount to 40,000 CU. . The amount of other expenses, such as advertising, marketing and promotion expenses, will result from the team's decisions. For the sake of simplicity in the simulation, expenses of this nature are aggregated into a single line item and in this example represent a small percentage of total costs (before the inclusion of advertising expenses). Future sales are sensitive to the level of spending for market development and maintenance. 8 - Credit conditions (same initial conditions apply to all firms) Investments in manufacturing equipment, all personnel expenditure, other purchases and external expenses are paid cash during the accounting period concerned. The company pays 90% of the value of the purchases of motors and parts in cash in the period concerned and the remaining 10% (debt to suppliers) are paid in the immediately following period. Chapter 3 - Financial Statements: Interrelations and Construction - p. 8/10 Customers pay the company 85% of the invoiced value of the sale in the period during which delivery takes place. The credit sales amount is therefore 15% of sales revenue. Credit sales are included in accounts receivable and will be settled in the following accounting period.2 9- Income tax and dividends (same conditions apply to all firms) If the income statement shows a profit, it is assessed for income tax purposes at a rate of 40%. The amount of income tax is rounded to the lower 000 CU. Income tax is due to the state at the end of the year and paid during the following year. No fixed minimum income tax is due when the company incurs a loss. Unlike in the real world, losses in previous years cannot be used to offset current taxable income. The net after tax income may be distributed wholly or partially as a dividend to shareholders. The amount of the dividend (if any) distributed during any year cannot exceed the income of the preceding year, i.e., it has been agreed by shareholders that, once earnings have been retained, they should not be distributed. 10 - Decisions to be taken by the Board See Appendix 1. 11 - Procedure for a one-year simulation A- Prepare the batch of budgeted documents (pro forma balance sheet, income statement, and statement of cash flows) to test the validity of your decisions (see Appendix 2). B - Hand-in your decision sheet to the instructor. C - The instructor will advise each firm of the volume of its actual sales for the period. This amount is a maximum figure. If a business has not planned to produce enough to meet the revealed demand, that firm's sales will be limited to the quantities available for shipment (production of the period plus available beginning inventory). The calculation of the potential maximum sales available to any firm reflects the decisions taken by both the firm itself and its competitors. D- Once each firm knows its actual demand, each management team will prepare the resulting definitive accounting documents (statement of financial position balance sheet, income statement, statement of cash flows), which will be presented to the shareholders. These Chapter 3 - Financial Statements: Interrelations and Construction - p. 9/10 YEAR NAME OF THE FIRM BACH Appendix 1: Decision Sheet (these decisions are not modifiable once handed in) 1 Sales 1.1 Unit selling price in CU) 1.2 Quantities you intend to sell 2 Production 2.1 Investment (number of acquired new assembly lines) 2.2 Number of operational assembly lines: existing lines at the end of the previous period minus fully depreciated lines at the end of the previous period plus newly acquired lines = number of productive lines available this period 2.3 Production you will launch (quantity of hairdryers) 2.4 Outside purchases of motors and parts (quantity) Il 1000 dan 2.5 Consumption of motors and parts (quantity) (hopefully equal to quantity in 2.3) 3 Personnel 3.1 New hires (number of persons) 3.2 Personnel dismissed (number of persons) 3.3 Annual total remuneration (excluding employers' social security charges) - in CU per assembly worker (remember to include any salary increase, if applicable) 4 External expenses (in 000 CU) 4.1 4.2 Budget for advertising, marketing and promotion Auditing fees (of the past year) 5 Dividends and others (in 000 CU) 5.1 5.2 5.3 5.4 Dividends distributed Profit not distributed (and transferred to retained earnings) Increase of capital in cash (on the basis of approval by shareholders) Increase of capital by incorporation of retained carnings (on the basis of approval by shareholders) New debt received according to agreements made) Interest expense on bank overdraft of the past year) 5.5 5.6 Chapter 3 - Financial Statements: Interrelations and Construction - p. 10/10 FIRME BACH Appendix 2a: Summary financial statements (Income statement nature) YEAR CASH FLOW BUDGET/STATEMENT (in 000 CU) INCOME STATEMENT (in 000 of CU) Operating expenses Operating revenues Purchases of motors and parts Change in inventory of raw materials (B-E) External expense Taxes (other than income tax) Personnel expense Depreciation expense Sales Change in inventory of finished products (E-B) (Where Ending and beginning) Financial expenses Financial revenues Opening balance (1) Cash flows from operating activities Cash received from sales: 85% of sales revenue... Cash received from accounts receivable (see preceding balance sheet) Cash paid for purchases: 90% of annual purchases Cash paid for accounts payable (see preceding balance sheet) Income tax payable ....... Taxes (other than income tax) Personnel expense. Rent expense............ Advertising and commercial expenses Auditing fees. Financial expense Net cash flows from operating activities (2) Cash flows from investing activities Acquisition of assembly lines...... Net cash flows used in investing activities (3) Cash flows from financing activities Increase in cupital New debt. Repayment of debt Dividends paid Sub total Sub total Income tax Net income Total Nct loss Total Beg Beg Ead Assets Fixed assets Manufacturing equip(net) BALANCE SHEET (in 000 of CU End Equity and liabilities Shareholders' equity Capital Accumulated retained carnings Net income/loss Subtotal Current assets Inventories - Motors and parts - Finished products Accounts receivable (15% of sales revenue) Liabilities Deht 8% X4 (due end of X).. Ner cash flows used in financing activities (4) Net increase (decrease) in cash ( 52)+( 34) Cash at bank Bank overdraft Accounts payable (10% of.... purchases) Income tax payable Total Ending balance (6)-(1)-(5) Total 1 - Introduction Bach Company is used in a simulation exercise, carried out in teams. It is intended to give realistic training in the use of accounting and financial statements for decision making, use of concepts, language and the preparation of financial documents. To this end, the participants in the simulation are expected to prepare statements of financial position balance sheets, income statements and cash flow budgets/statement of cash flows deriving from their decisions. All decisions, notably production and sourcing volumes, are made on a yearly basis and, once decided on, are not modifiable. Although each team decides on its intended sales volume (and all corollary decisions to make this estimation materialize) the actual volume of sales is not selected by the team and is determined externally, for each team, by the instructor. 2 - Your company and its market (each firm operates under these conditions) On 1 January X7, each team takes responsibility for the management of a firm called Bach-n, where n is the identifier of the team. On day 1 of period X7, all Bach Co firms in the simulation are identical to all the other ones. Each firm is a rather small-sized business. It designs, Chapter 3 - Financial Statements: Interrelations and Construction - p. 5/10 assembles and sells hairdryers on a limited domestic market. At the beginning of the simulation, the market is shared equally, between five companies, all of similar size.! The overall market for the year X7 is estimated to be about 500,000 units (see endnote 6). It is reasonable to anticipate that the total market size will increase or decrease, beyond X7 at a trend average rate of about x% per year (where x is decided by the instructor), but this will depend on the decisions taken by each firm in such matters as the selling price and its evolution for the firm, advertising and marketing expenses and so on. The market is extremely sensitive to prices and to marketing expenses. In a downmarket, for example, the firm with the highest marketing and sales expenses might see its market share grow, and, maybe, even its sales volume grow, even if the overall market is shrinking. 3 - Manufacturing equipment (same initial conditions apply to each firm) On the opening date (1 January X7), the production capacity of each firm consists of nine assembly lines. Each one can assemble a maximum of 10,000 dryers per year. An additional assembly line would represent an investment of 50,000 CU. It would be depreciated over five years using the straight-line method, which implies a yearly depreciation expense of 10,000 CU for each new line acquired. Old lines, in this fictitious world with no inflation, were acquired, at different times, at the same price of 50,000 CU per line. They have been depreciated using the straight-line method on the basis of a useful life of 5 years. The existing equipment (nine assembly lines) is broken down, for each company, as follows (values are in thousands of CU): Years Gross value # of lines 2 operated 4 years Accumulated Depreciation (2 x 40) Net book value (2 x 10) (2 x 50) 3 3 1 Lines which have already operated for 3 years 2 years 1 year Their accounting book value is therefore (3 x 50) (3 x 50) 50 (3 x 30) (3 x 20) 10 (3 x 20) (3 x 30 40 Each company may invest (on 1 January of each year) in as many new assembly lines as it feels is necessary to achieve its business plan. Each new assembly line is operational immediately in the period of purchase. All purchases are assumed to take place at the beginning of the period and therefore a new line increases the capacity of production by 10,000 units. Once an assembly line is fully depreciated, it is scrapped and has neither residual value nor production capabilities. 4 - Inventories (same initial conditions apply to each firm) Each firm acquires from outside suppliers the motors and parts, which enter into the assembly of the hair dryers. There is no risk of shortage of motors or parts and there is no competition to access the parts and motors markets. The motors are purchased for a cost of 8 CU per unit in X7 (each dryer requires one motor). The various other parts are acquired at a cost of 10 CU in X7 for a set of parts allowing the assembly of one dryer. The total material cost is therefore 18 CU for each hairdryer. The number of teams in the simulation will, in fact, vary according to the number of participants. The average quantity of units potentially sold by any firm is always 100,000 in the first period. Thus the market potential in period X7 is equal to the number of teams multiplied by 100,000 units. On 1 January X7, each company holds an inventory on hand of motors and parts, which allows the production of 10,000 hairdryers without any additional purchases. In addition, each company has 5000 finished dryers in inventory, ready for delivery, whose unit direct cost (materials and labor) amounts to 27 CU, calculated as follows: 10 Motor, per unit Parts, per unit Direct labor Annual salary cost of one worker Number of dryers made in a year (per worker) ---> Labor cost of one dryer Total cost 18,000 CU 2,000 27 5 - Personnel (same initial conditions apply to each firm) As of 1 January X7, fifty employees are working on the production lines in each firm. Each worker can normally assemble up to 2,000 hairdryers in a year. As far as production is concerned, each company can hire additional personnel or dismiss redundant workers. Every dismissal must first be notified to an inspector from the Ministry of Labor, who may refuse the lay off, and will be subject to the payment to the worker of a cash indemnity equivalent to four months of salary. No social charges will be applied to this indemnity. Dismissals are presumed to take place at the beginning of the period in which they take place. (The indemnity is consequently based on the salary before any increase.). In X7 the minimum annual salary is 12,000 CU per assembly worker. In addition to the salary, the employer must pay social charges (health care, retirement, unemployment, vacations, etc.) amounting to 50% of the employee's remuneration. Thus the total labor cost incurred by the firm is 18,000 CU per year for each employee. In the second period (X8), the management of each company is free to raise the base pay by whichever amount it feels is necessary. Management, selling and administrative personnel as a whole receive a total remuneration amounting to 200,000 CU per year in X7. Once social charges are added at the rate of 50%, the payroll cost to the employer for management, selling and administrative personnel is 300,000 CU. This category of personnel will benefit from any percentage increase granted to production workers. Thus, the per person payroll cost for both assembly production personnel and management, selling and administrative personnel would increase in a firm, by the exact same proportion if a raise were decided by management. The management, selling and administrative personnel fulfills essential functions in the company and cannot be dismissed, regardless of the level of activity. Unlike the manual labor used in assembly work, this category of personnel uses a lot of computerized and automated routines and could handle a significant increase in the workload without requiring any new hiring. 6 - Financing (same initial conditions apply to all firms) The opening balance sheet shown below indicates that the shareholders have paid in 250,000 CU of share capital and that the company has realized profits in the past since the accumulated retained earnings amount to 110,000 CU. A debt of 200,000 CU was contracted in the first days of X4 with interest payable at the annual rate of 8%. It is repayable on 31 December X8. The interest is due every twelve months on the Chapter 3 - Financial Statements: Interrelations and Construction - p. 7/10 last day of the accounting period. The amount of any new (medium- or long-term) debt a firm may require for its planned activities would have to be negotiated in light of justified needs. The banker(s) or the shareholders must pre-approve any request for additional debt financing or issuance of new capital. Their final decision can only be taken after they have been provided with the firm pro forma financial statements and they have been able to review the financial situation of the company. *Temporary' financial needs can be covered by short-term overdrafts granted by the bank. Interest is charged at the rate of 10% on the amount of overdraft calculated on the last day of the accounting period and is payable immediately. Balance sheet at 31 December X6 (before appropriation of the X6 earnings by the General Assembly) (000 CU) Shareholders' equity and liabilities Shareholders' equity 210 Capital 250 Accumulated retained earnings 110 Net income X6 (to be appropriated in X7) 90 Assets Fixed assets Manufacturing equipment (net) Gross value: 450 Accumulated depreciation: -240 Current assets Inventories Components and parts (18 x 10,000) Finished products (27 x 5,000) Accounts receivable Cash at bank Total Liabilities 180 Debt 8% X4 (principal due on 31/12/X8) 135 Accounts payable 350 Income tax payable 70 945 Total 200 235 60 945 Balance sheet at 31 December X6 (before appropriation of the X6 earnings by the General Assembly) (000 CU) Shareholders' equity and liabilities Shareholders' equity 210 Capital 250 Accumulated retained earnings 110 Net income X6 (to be appropriated in X7) 90 Assets Fixed assets Manufacturing equipment (net) Gross value: 450 Accumulated depreciation: -240 Current assets Inventories Components and parts (18 x 10,000) Finished products (27 x 5,000) Accounts receivable Cash at bank Total Liabilities 180 Debt 8% X4 (principal due on 31/12/X8) 135 Accounts payable 350 Income tax payable 70 945 Total 200 235 60 945 7 - Other purchases and external expenses (yearly amounts, applicable to each firm) Each firm rents its factory buildings for 300,000 CU per year. (The offices of the administration and sales team are generously provided for free by one of the firm's major shareholders). Property taxes (not income related) amount to 40,000 CU. . The amount of other expenses, such as advertising, marketing and promotion expenses, will result from the team's decisions. For the sake of simplicity in the simulation, expenses of this nature are aggregated into a single line item and in this example represent a small percentage of total costs (before the inclusion of advertising expenses). Future sales are sensitive to the level of spending for market development and maintenance. 8 - Credit conditions (same initial conditions apply to all firms) Investments in manufacturing equipment, all personnel expenditure, other purchases and external expenses are paid cash during the accounting period concerned. The company pays 90% of the value of the purchases of motors and parts in cash in the period concerned and the remaining 10% (debt to suppliers) are paid in the immediately following period. Chapter 3 - Financial Statements: Interrelations and Construction - p. 8/10 Customers pay the company 85% of the invoiced value of the sale in the period during which delivery takes place. The credit sales amount is therefore 15% of sales revenue. Credit sales are included in accounts receivable and will be settled in the following accounting period.2 9- Income tax and dividends (same conditions apply to all firms) If the income statement shows a profit, it is assessed for income tax purposes at a rate of 40%. The amount of income tax is rounded to the lower 000 CU. Income tax is due to the state at the end of the year and paid during the following year. No fixed minimum income tax is due when the company incurs a loss. Unlike in the real world, losses in previous years cannot be used to offset current taxable income. The net after tax income may be distributed wholly or partially as a dividend to shareholders. The amount of the dividend (if any) distributed during any year cannot exceed the income of the preceding year, i.e., it has been agreed by shareholders that, once earnings have been retained, they should not be distributed. 10 - Decisions to be taken by the Board See Appendix 1. 11 - Procedure for a one-year simulation A- Prepare the batch of budgeted documents (pro forma balance sheet, income statement, and statement of cash flows) to test the validity of your decisions (see Appendix 2). B - Hand-in your decision sheet to the instructor. C - The instructor will advise each firm of the volume of its actual sales for the period. This amount is a maximum figure. If a business has not planned to produce enough to meet the revealed demand, that firm's sales will be limited to the quantities available for shipment (production of the period plus available beginning inventory). The calculation of the potential maximum sales available to any firm reflects the decisions taken by both the firm itself and its competitors. D- Once each firm knows its actual demand, each management team will prepare the resulting definitive accounting documents (statement of financial position balance sheet, income statement, statement of cash flows), which will be presented to the shareholders. These Chapter 3 - Financial Statements: Interrelations and Construction - p. 9/10 YEAR NAME OF THE FIRM BACH Appendix 1: Decision Sheet (these decisions are not modifiable once handed in) 1 Sales 1.1 Unit selling price in CU) 1.2 Quantities you intend to sell 2 Production 2.1 Investment (number of acquired new assembly lines) 2.2 Number of operational assembly lines: existing lines at the end of the previous period minus fully depreciated lines at the end of the previous period plus newly acquired lines = number of productive lines available this period 2.3 Production you will launch (quantity of hairdryers) 2.4 Outside purchases of motors and parts (quantity) Il 1000 dan 2.5 Consumption of motors and parts (quantity) (hopefully equal to quantity in 2.3) 3 Personnel 3.1 New hires (number of persons) 3.2 Personnel dismissed (number of persons) 3.3 Annual total remuneration (excluding employers' social security charges) - in CU per assembly worker (remember to include any salary increase, if applicable) 4 External expenses (in 000 CU) 4.1 4.2 Budget for advertising, marketing and promotion Auditing fees (of the past year) 5 Dividends and others (in 000 CU) 5.1 5.2 5.3 5.4 Dividends distributed Profit not distributed (and transferred to retained earnings) Increase of capital in cash (on the basis of approval by shareholders) Increase of capital by incorporation of retained carnings (on the basis of approval by shareholders) New debt received according to agreements made) Interest expense on bank overdraft of the past year) 5.5 5.6 Chapter 3 - Financial Statements: Interrelations and Construction - p. 10/10 FIRME BACH Appendix 2a: Summary financial statements (Income statement nature) YEAR CASH FLOW BUDGET/STATEMENT (in 000 CU) INCOME STATEMENT (in 000 of CU) Operating expenses Operating revenues Purchases of motors and parts Change in inventory of raw materials (B-E) External expense Taxes (other than income tax) Personnel expense Depreciation expense Sales Change in inventory of finished products (E-B) (Where Ending and beginning) Financial expenses Financial revenues Opening balance (1) Cash flows from operating activities Cash received from sales: 85% of sales revenue... Cash received from accounts receivable (see preceding balance sheet) Cash paid for purchases: 90% of annual purchases Cash paid for accounts payable (see preceding balance sheet) Income tax payable ....... Taxes (other than income tax) Personnel expense. Rent expense............ Advertising and commercial expenses Auditing fees. Financial expense Net cash flows from operating activities (2) Cash flows from investing activities Acquisition of assembly lines...... Net cash flows used in investing activities (3) Cash flows from financing activities Increase in cupital New debt. Repayment of debt Dividends paid Sub total Sub total Income tax Net income Total Nct loss Total Beg Beg Ead Assets Fixed assets Manufacturing equip(net) BALANCE SHEET (in 000 of CU End Equity and liabilities Shareholders' equity Capital Accumulated retained carnings Net income/loss Subtotal Current assets Inventories - Motors and parts - Finished products Accounts receivable (15% of sales revenue) Liabilities Deht 8% X4 (due end of X).. Ner cash flows used in financing activities (4) Net increase (decrease) in cash ( 52)+( 34) Cash at bank Bank overdraft Accounts payable (10% of.... purchases) Income tax payable Total Ending balance (6)-(1)-(5) Total