Alejandro and Susan established the e-commerce company iWish and made a business plan for their new company. According to the plan, the company will sell goods that can be grouped in four main categories:

1. Lipstick/Makeup

2. Weights

3. Clothing

4.Kitchenware and ornaments

Recently, Alejandro and Susan have visited exhibitions and trade fairs and have secured a valuable network of Canadian manufacturers of goods in the four above categories. They have also found a small warehouse in the Lille area and have negotiated terms for the French distribution of the goods.

iWish was established January 2, 2021, and the company's opening balance looked as follows after Alejandro and Susan, who owns 50 percent each, had privately covered the registration costs for the company:

All the questions shall be solved using a spreadsheet

Bank deposits 100,000

Total assets 100,000

Share capital 100,000

Total equity and debts 100,000

The financial planning is based on information retrieved from the company's business plan:

In January 2021, an investment of 500 000 will be made to cover the costs for the company's Internet site. Since the expected economic life of this asset is less than three years, the investment will not be capitalized and depreciated but taken to cost immediately.

There will be a 150 000 deposit for the warehouse rent, to be paid in January 2021.

iWish uses a cost-based pricing model, with a markup (profit on top of the purchase price including freight to France) of 80 percent, before Value Added Tax.

The company has a free 30-day return policy and expects that as much as 20 percent of the goods will be returned, measured in terms of sales revenue. The returned goods cannot be sold at full prices and will be offered to a discount outlet store for half of the original sticker price, the month after they have been returned to iWish.

For simplification, we assume that the goods arrive in France the same month they are ordered and are also paid this month.

The customers pay with debit/credit cards when the goods are purchased, and they also pay the freight costs in full.

Marketing activities take place on various social media platforms and the company plans in this respect to spending monthly 50,000 in Q1 and Q2 and 100,000 per month in Q3 and Q4. These costs are paid the same month as they occur.

The other operational costs are expected to be 25,000 per month in Q1, 30,000 per month in Q2, and 35,000 per month for the rest of 2021. These costs are also paid the same month as they occur.

Alejandro and Susan are uncertain about how much to budget for their own salaries and other personnel costs. The goal is to have a budgeted monthly rate of return on sales of 5 percent after salaries and other personnel costs. Hence, the budget must be used to determine the level of the monthly salaries and other personnel costs. For the sake of simplicity, we can assume that all of these costs are paid the same month as they occur.

The sales and purchase budgets for 2021 are as follows (all figures ex VAT):

	Purchase of Goods in	Sales Budget in
January	250,000	0
February	350,000	250,000
March	400,000	450,000
April	400,000	500,000
May	450,000	600,000
June	450,000	600,000
July	500,000	800,000
August	550,000	850,000
September	550,000	850,000
October	700,000	1,000,000
November	800,000	1,100,000
December	800,000	1,200,000

Total 2022 6,200,000. 8,200,000

The above figures do not include the returned goods and the revenues from selling them for the second time at a discounted price, ref. point 4 above.

Question 1a Calculate for each month the company's net sales income (1), cost of goods sold (2), and the closing balance of the inventory (3).

(1) The net sales income consists of the budgeted sales, less credit invoices due to customer returns, and the sales income from re-selling the returned goods.

(2) Based on the 80% mark-up pricing policy

(3) Based on the cost of goods sold and the monthly change of inventory. You may disregard the fact that the company at the end of the year will have returned goods from December to be sold in January 2021

Question 1b Make a budgeted monthly income statement for 2021. What will the budgeted book value of the equity be December 31, 2021? Is the company sufficiently solid after the end of the first year of operations? If not, suggest measures that will increase the rate of solidity.

Before Alejandro and Susan make the cash flow budget, they need to calculate the payments for Value Added Tax in 2021. In this respect, the following additional information is relevant:

There are six bi-monthly VAT terms:

o Term 1 (January and February) is paid in April o Term 2 (March and April) is paid in June o Term 3 (May and June) is paid in August o Term 4 (July and August) is paid in October o Term 5 (September and October) is paid in December o Term 6 (November and December) is paid in February 2022

All sales are domestic sales, subject to 25 percent output VAT

When the imported goods arrive at the french border, they will be customs cleared. There are no import duties, but the goods are subject to 25 percent import VAT. Since this import VAT is fully deductible, this not paid but only reported as a zero-sum in the bi-monthly VAT returns.

All the budgeted operational costs, except salaries and personnel costs, are subject to 25 percent input VAT.

Question 1c Present a table showing the following information for each of the six VAT returns: The basis for the output and input VAT, the calculated output and input VAT as well as the net payable or receivable VAT.

Question 1d

iWish needs additional cash to fund its operations the first year. Alejandro's uncle, the famous English investor Billy Gilmount, has promised to cover the company's negative cash flow along the way. Still, he needs a budget that gives him information about what he can expect to pay, and when. The company wants to have a minimum of 500 000 on the bank account at the beginning of each month from February onwards.

Gilmount does not expect that the loan or parts of it is paid back during 2021, even if the cash-flow situation improves later in the year. Present a monthly cash-flow budget, where you show the need for external funding, both in terms of time as well as the amount needed.