BK Transport is a Melbourne-based small business owned and operated by Brendan. The business commenced in late 2020 when Brendan saw an opportunity to earn income from deliveries when the global pandemic and lockdowns had recently begun. The business has four small vans which are used for clients deliveries, which include parcels, letters and furniture items. While Brendan completes both the administration work and does some deliveries, the business also employs several drivers on a part-time or casual basis.

Brendan has prepared the latest financial statements along with some financial ratios which are presented below. Review the information provided and answer the questions below.

Based on the info provided above , answer the following:

a) Brendan has noticed that during the second year of operations, the business seemed to be much busier than in the first year, but its financial performance was not as favourable. Key data from 2021 include Delivery Fees Income $200,000, Vehicle Running Costs $90,000, Wages $70,000, and profit $21,000. Brendan is disappointed that the higher income earned in 2022 did not result in higher profit.

Provide two (2) reasons related to each expense: (i) vehicle running costs and (ii) wages, that could explain why these expenses were proportionately higher in 2022.

b) Explain and interpret the information appearing within the Cash Flows from Investing Activities section of the Statement of Cash Flows AND provide a reason that might explain why the activity related to vehicles occurred.

c)Using data provided in relation to profit, balance sheet, the debt ratio and the interest coverage ratios, evaluate the change in financial risk (if any) of BK Transport over the two years.

\begin{tabular}{|l|c|c|} \hline \multicolumn{2}{|c|}{ BK Transport Income Statement for the year ended 30 June 2022} \\ \hline Income & $ & $ \\ Delivery Fees & 300,000 & \\ Add Gain on sale of vehicle & 3,750 & \\ Total Income & & 303,750 \\ \hline Expenses & & \\ Vehicle running costs & 152,500 & \\ Wages & 123,500 & \\ Administration & 6,500 & \\ Depreciation & 6,250 & \\ Interest & 2,500 & \\ Rent & 4,500 & \\ Total Expenses & & \\ \hline Profit & & \\ \hline \end{tabular} \begin{tabular}{|l|c|} \hline \multicolumn{2}{|c|}{ BK Transport Statement of Changes in Equity for the year ended 30 June 2022} \\ \hline & $ \\ \hline Capital at 1 July 2021 & 137,000 \\ \hline Additional capital & 19,000 \\ \hline Add profit & 8,000 \\ \hline Less drawings & 14,250 \\ \hline Capital at 30 June 2022 & 159,750 \\ \hline \end{tabular} BK Transport Statement of Cash Flows for the vear ended 30 June 2022 \begin{tabular}{|l|c|c|} \hline Financial ratios & 2022 & 2021 \\ \hline Interest Coverage & 4.2 times & 7.1 times \\ \hline Debt Ratio & 19.5% & 28.6% \\ \hline Days Debtors & 17 days & 30 days \\ \hline \end{tabular} \begin{tabular}{|l|c|c|} \hline \multicolumn{2}{|c|}{ BK Transport Income Statement for the year ended 30 June 2022} \\ \hline Income & $ & $ \\ Delivery Fees & 300,000 & \\ Add Gain on sale of vehicle & 3,750 & \\ Total Income & & 303,750 \\ \hline Expenses & & \\ Vehicle running costs & 152,500 & \\ Wages & 123,500 & \\ Administration & 6,500 & \\ Depreciation & 6,250 & \\ Interest & 2,500 & \\ Rent & 4,500 & \\ Total Expenses & & \\ \hline Profit & & \\ \hline \end{tabular} \begin{tabular}{|l|c|} \hline \multicolumn{2}{|c|}{ BK Transport Statement of Changes in Equity for the year ended 30 June 2022} \\ \hline & $ \\ \hline Capital at 1 July 2021 & 137,000 \\ \hline Additional capital & 19,000 \\ \hline Add profit & 8,000 \\ \hline Less drawings & 14,250 \\ \hline Capital at 30 June 2022 & 159,750 \\ \hline \end{tabular} BK Transport Statement of Cash Flows for the vear ended 30 June 2022 \begin{tabular}{|l|c|c|} \hline Financial ratios & 2022 & 2021 \\ \hline Interest Coverage & 4.2 times & 7.1 times \\ \hline Debt Ratio & 19.5% & 28.6% \\ \hline Days Debtors & 17 days & 30 days \\ \hline \end{tabular}