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.

Using the above info , answer the following :

a) Brendan, the owner of BK Transport, said he was happy that his equity in the firm increased over the two year period as it indicates that the business has been successful. Do you agree or disagree with his opinion? Justify your answer.

b) Consider the information provided by BK Transport in relation to its credit customers and Days Debtors. In 2021, Brendan offered customers 30 day terms, which he reduced in 2022 to 14 days to improve his cash flow. Brendan previously had no concerns about the collectability of amounts owing on credit, but is wondering whether he should record something in relation to these.

Explain the information provided in relation to credit customers, and suggest whether you think Brendan should allow for doubtful debts in future.

\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}