Assignment #

$36$

Prepare a pro forma income statement for the six

$-$

month period ended November

$30$

$,$

$2018$

Prepare a projected cash budget for the six

$-$

month period ended November

$30$

$,$

$2018$

In the second half of the financial year ended May

$31$

$,$

$2018$

$,$

$$the business generated a net income of $

$62$

$,$

$400$

$$and sales of $

$525$

$,$

$000$

$.$

$$It is believed that this level

of performance will be repeated in the forthcoming six

$-$

month period, provided the business does not implement any changes to it's marketing strategy. The

business is determined to increase its markert share, however, and is considering the adoption of a new marketing strategy that has been developed by the

marketing department. The maine elements of the new strategy are as follows:

The selling price of each satellite dish will be reduced to $

$90$

$.$

$$At present each dish is sold for $

$120$

There will be an increase in the amount of advertising costs incurred by the business. Advertising costs will increase from $

$6$

$,$

$500$

$$per month to $

$13$

$,$

$000$

per month.

Retail outlets will be allowed to pay for satellite dishes three months after delovery. At present, customers are allowed one month's credit. Those retail

outlets that continue to pay within one month will, for future sales, be given a

$2$

$\%$

$$discount$.$

The marketing department believes that, due to the new strategy, sales in each of the first three months to retail outlets will rise to

$1$

$,$

$000$

$$units and sales to the

public will rise to

$300$

$$units$.$ Thereafter, sales each month will be

$1$

$,$

$200$

$$units and

$400$

$$units respectively.

Assuming the strategy is adopted, the following forecast information is available.

The purchase of satellite dishes will be made at the beginning of each month and will be sufficient to meet that months's sales. Each satellite dish costs $

$60$

$.$

Suppliers are paid one month after the month of purchase.

Amortization will be charged on buildings at

$2$

$\%$

$$per year on cost and furniture and fixtures at

$15$

$\%$

$$per year on cost

$.$

Motor vehicles costing $

$80$

$,$

$000$

$$will be aquired and paid immediately. These are required to implement the new strategy and will be amortized at

$30$

$\%$

Wages will be $

$18$

$,$

$000$

$$per month and will be paid in the month in which they are incurred.

Advertising costs will be paid for in the month incurred.

Overhead costs

$($

excluding costs mentioned above

$)$

$$will be $

$14$

$,$

$0000$

$$per month and will continue to be paid for one month after the month in which they are

incurred.

The loan of $

$48$

$,$

$000$

$$will be repaid in July

$2018$

Sales direct to the public will continue to be paid for in cash. No credit will be allowed.

It is estimated that

$50$

$\%$

$$of retail sales will continue to be on one month's credit and

$50$

$\%$

$$will be on three month's credit.

Kwaysar Limited

Balance Sheet

As at May

$31$

$,$

$2018$

$($

in $ thousands

$)$

Current assets

Cash

Accounts receivable

Inventory

Total current assets

Property, plant, and equipment, net

Land

Buildings

Less:Accumulated amortization

Furniture and fixtures

Less:Accumulated amortization

Total property, plant and equipment

Total assets

Current liabilities

Accounts payable

Accrued overhead

Total current liabilities

Long

$-$

term liabilities

Bank loan payable

Total liabilities

Shareholders' equity

Common shares

Contributed capital

Retained earnings

Total shareholders' equity

Total liabilities and shareholders' equity