Allman Brothers Cleaning

Allman Brothers Cleaning is a family run business that provides domestic cleaning services in Melbourne. The business has 1 employee and is operated by Ron and Mikala Allman. You are preparing a Client Advice Plan and you need to establish what the operational state of the business is. They are wanting to grow the business and are seeing advice for business loans.

You must complete each of the tasks below and treat each question independently from all other parts.

a) Percentage summary income statements for the business of Allman Brothers for the years 2017 and 2018 are as follows:

2017

2018

Sales

100%

100%

Less Cost of Goods Sold

45%

65%

Gross Profit

55%

35%

Give reasons that may explain the gross profit variations as disclosed by the above percentage analysis.

b) The following ratio calculations were made for the Allman Brothers for 2017 and 2018:

2017

2018

Current Ratio

3.0:1

3.0:1

Liquid Ratio

1.2:1

0.8:1

Give reasoned opinion on the composition of the current and liquid assets and the short- term liquidity situation as disclosed by the above ratios. (Note: the firm does not have a bank overdraft)Task 2

Income Statement for the year ended

30 June 2017

$000's

$000's

Sales (credit)

$60,000.00

Less Cost of Goods Sold

$50,000.00

Gross Profit

$10,000.00

Less Operating expenses

Depreciation

$2,000.00

Others

$1,200.00

Interest

$1,800.00

-$5,000.00

$5,000.00

Less Income Tax expense

-$2,000.00

Net Profit Tax Expense

$3,000.00

Balance Sheet as at 30 June 2018

Current Assets

$6,000.00

Accounts Receivable

$5,000.00

$11,000.00

Inventory

Non-current Assets

Land and Building

$20,000.00

Plant

$8,000.00

Accumulated Depreciation- Plant

-$ 6,000.00

$2,000.00

Motor Vehicle

$5,000.00

Accumulated Depreciation- Motor Vehicle

-$ 3,000.00

$2,000.00

Goodwill

$5,000.00

$29,000.00

TOTAL ASSETS

$40,000.00

Current Liabilities

Accounts payable

$500.00

Income Tax payable

$1,000.00

Dividend payable

$600.00

Bank overdraft

$900.00

$3,000.00

Non -Current Liabilities

Unsecured Notes (20%)

$5,000.00

Mortgage - Land & Building

$12,000.00

$17,000.00

Total Liabilities

$20,000.00

NET ASSETS

$20,000.00

OWNERS EQUITY:

Share Capital

preference Shares - $1 (5%) fully paid

$2,000.00

Ordinary Shares - $1 paid to $0.50 cents

$10,000.00

Retained earnings

$2,900.00

General reserves

$5,100.00

$20,000.00

Profit & Loss Appropriation statement for the year ended 30 June 2017

Retained Earnings 01/07/2013

$000's

$000's

Net Profit after tax

1,000

3,000

4,000

Less Dividends provided for:

Dividend Payable Preference Shares

100

Dividend Ordinary Shares

500

Interim dividend ordinary Shares paid

500

-1,100

$2,900.00

Additional Information$000's

Inventory 01/07/2018$1,250

Accounts Receivable$1,000

market price of ordinary shares as at 30/06/2018$62.5 cents per share

Equity 01/07/2018$18,500

1.Calculate the following performance indicators show the formula used and the calculation for each:

a)Current ratio=Current Asset/Current Liabilities

=11,000/3,000

=11:3

b)Liquid Ratio=

c)Inventory turnover (times p.a) =Cost of Goods sold/Inventory

=50000/1250000

=0.04 times p.a

d)Average collection period for accounts receivable (365day year) =Days in period /Receivable Turnover Ratio

=

e)Total asset turnover= sales/Total Assets

f)Debt to equity=Total Liabilities/Total Sharholders Equity

g)Return on equity=operating Profit after Tax/Shareholders Equty

h)Interest coverage= Earning before Interest and Tax/Interest Expenses

i)Earnings per ordinary share = operating profit after tax-preference share dividend/Weighted Avergae Number of Ordinary shares outstanding

Dividend per share= Dividends

2.Complete the Client Information Form provided with this assessment for the case study

3.Provide suggestions for the client about their business performance by providing an overview of the business performance and options for continuance of the business for short and long term loan options

4.Assessment of the relevant significant taxation issues

5.Provide details of sources of all advice that you have used, including the relevant authorities and where was sourced from.