Information to be reviewed:
- Financial statements for the past 2 years are provided.
- Market research suggest the sales will increase by 15 percent over the next financial period.
- The cost of sales will remain constant per unit sold.
- Operating expenses are forecasted to increase by 5% with the exception of:
- Rent, utilities, repairs and maintenance are increasing by 3%
- Increase in amortisation by 2%
- Interest on long-term debt will remain constant
- Wages, benefits and vehicles will increase by 10%.
- The company plans to increase advertising by 15%.
- Other expenses and income are estimated to be a loss of AU$1200 for the year.
- Income is taxed at 15.5%
| | 2019 AU$ | 2018 AU$ |
| Revenue | 1270503.9 | 1,104,786 |
| Cost of sales | (740,114) | (740,114) |
| Gross Profit | 530,390 | 364,672 |
| Operating expenses | 379,426.5 | (286,817) |
| Income from operations | 150,963 | 77,855 |
| Other income and expenses | (1200) | 15,048 |
| Net income before tax | 149,763 | 92,903 |
| Tax expense | 23,213 | 14,387 |
| Net income | 126,550 | 78,516 |
| Retained earnings/Deficit (Previous year) | 17,166 | (61,350) |
| Retained earnings | 143,716 | 17,166 |
- Conduct a risk assessment and risk management plan for the following risks:
- Marketing strategy fails, and revenue growth is lower than 5%. (Probability of 60%)
- Bad debts increase by 30% in a pessimistic forecast (Probability 70%)
- There is an accident in the factory, which increases legal fees to AU$10,000. (Probability 20%) -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- I need help to finish this risk assessment and the risk management plan. I need to include the project income statement and identify the risk associated with it such as a: 1. Possible drop in sales by 5% 2. Increase in bad debts by 30% 3. Factory accident leading to loss of production and legal action by injured employee How would I will manage them and must use a Risk matrix to show this.
5% sales Inc. 5% sales Inc. Accident
| Revenue | 1270503.9 | | |
| Cost of sales | (740,114) | | |
| Gross Profit | 530,390 | | |
| Operating expenses | 379,426.5 | | |
| Income from operations | 150,963 | | |
| Other income and expenses | (1200) | | |
| Net income before tax | 149,763 | | |
| Tax expense | 23,213 | | |
| Net income | 126,550 | | |
| Retained earnings/Deficit (Previous year) | 17,166 | | |
| Retained earnings | 143,716 | | |
SHOEPERAMA BALANCE SHEET AS AT DECEMBER 31, 2018 SHOEPERAMA UNAUDITED - See "Notice to Reader" 2018 2017 ASSETS AUS AUS CURRENT Cash Accounts receivable Deposits and prepaid expenses Inventory 11,552 42,970 2,942 159,144 216,608 50,595 2,688 156,657 209,940 PROPERTY, PLANT AND EQUIPMENT (Note 2) 59,890 76,318 INVESTMENTS AU$ 276,498 45,001 AUS 331,259 LIABILITIES AUS AUS CURRENT Bank overdraft Bank loan Accounts payable and accrued liabilities Long-term debt - current portion Income tax payable 9,474 60,000 91,343 82,053 25,200 14,387 121,640 160,817 DUE TO SHAREHOLDER (Note 3) 51,591 231,791 LONG-TERM DEBT (Note 4) 86,100 259,331 392,608 SHAREHOLDER'S EQUITY STATED CAPITAL (Note 5) RETAINED EARNINGS (DEFICIT) 17,166 17,167 276,498 (61,350) (61,349) AU$ 331,259 AU$ SHOEPERAMA STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 2018 UNAUDITED-See "Notice to Reader" 2018 2017 REVENUE AU$ 1,104,786 AU$ 1,133,736 COST OF SALES Opening inventory Delivery Purchases 156,657 1,607 740,994 899,258 159,144 740,114 146,278 1,249 794,101 941,628 156,657 784,971 Closing inventory GROSS PROFIT 364,672 348,765 OPERATING EXPENSES (schedule) 286,817 339,905 INCOME FROM OPERATIONS 77,855 8,860 (387) OTHER INCOME (EXPENSES) Loss on disposal of property, plant and equipment Gain on sale of investment Miscellaneous 16,149 (1,101) 337 (50) 15,048 NET INCOME BEFORE TAX 92,903 8,810 INCOME TAX EXPENSE 14,387 NET INCOME 78,516 8,810 (DEFICIT) - Beginning of Year (61,350) (54,160) DIVIDENDS (16,000) RETAINED EARNINGS (DEFICIT) - End of Year AU$ 17,166 AU$ (61,350) SHOEPERAMA STATEMENT OF CASH FLOW FOR THE YEAR ENDED DECEMBER 31, 2018 UNAUDITED - See "Notice to Reader" 2018 2017 AUS 78.516 AUS 8,810 CASH FLOWS FROM OPERATING ACTIVITIES Net income for the year Adjustment for: Amortisation Loss on disposal of property, plant and equipment Gain on disposal of investment Cash derived from operations 17,854 16,856 387 (16,149) 80,221 26,053 Decrease increase) in working capital items Accounts receivable Deposits and prepaid expenses Inventory Accounts payable and accrued liabilities Long-term debt - current portion Income tax payable Cash flows from operating activities 7,625 (254) (2,487) (9,290) 25,200 14,387 115,402 23,380 688 (904) 34,543 2,206 85,966 (1,426) (10,342) 3,113 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Proceeds from disposal of investment Dividends Cash flows from investing activities 61,150 (16,000) (23,229) 59,724 CASH FLOWS FROM FINANCING ACTIVITIES Advances from (repayments to) shareholder Acquisition of (repayment of) long-term debt (150,000) (180,200) 86,100 (94,100) (150,000) 81,026 (87,263) NET INCREASE (DECREASE) IN CASH RESOURCES CASH (DEFICIENCY) RESOURCES - Beginning of Year (69,474) 17,789 CASH RESOURCES (DEFICIENCY) - End of Year AU$ 11,552 AU$ (69,474) Cash resources (deficiency) is comprised of: Cash Bank overdraft Bank loan AU$ 11,552 AU$ (9,474) (60,000) (69,474) AU$ 11,552 AU$ SHOEPERAMA SCHEDULE OF OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2018 UNAUDITED - See "Notice to Reader" 2018 2017 OPERATING EXPENSES AU$ AU$ 18,801 17,854 199 30,715 16,856 179 9,356 4,035 5,510 4,779 11,876 13,155 Advertising Amortisation Bad debts Bank charges and interest Insurance Interest on long-term debt Legal and accounting Management fees Memberships and licences Office and general Rent and utilities Repairs and maintenance Subcontracting Supplies Travel Wages and benefits Vehicle 3,212 12,382 18,795 4,289 19,825 4,571 3,736 142,713 5,120 286,817 11,766 12,525 3,413 15,155 21,955 4,979 18,692 8,557 8,003 168,806 4,913 339,905 AU$ AU$ SHOEPERAMA NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2018 UNAUDITED - See "Notice to Reader" 1. SIGNIFICANT ACCOUNTING POLICIES AND GENERAL INFORMATION Nature of Business The company is a private corporation in Australia, subject to the Corporations Act, 2001, was incorporated in November 2005 and operates as a manufacturer of Shoes in Melbourne. Significant Accounting Policies INVENTORY The inventory is valued at the lower of cost or market, with cost being determined on a first-in, first-out basis. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost less accumulated amortisation. Amortisation is recorded at rates designed to amortise the cost of capital assets over their estimated useful lives. Amortisation rates used are as follows: Furniture and equipment Vehicle Computer equipment Leasehold improvements 20% declining balance 30% declining balance 30% declining balance straight-line 5 years 2. PROPERTY, PLANT AND EQUIPMENT Net Book Value Accumulated Amortisation Net Book Value 2017 Cost 2018 $ $ $ Furniture and equipment Vehicle Computer equipment Leasehold improvements 21,500 26,486 22,210 37,350 47,986 11,300 $ 15,460 6,457 10,200 11,026 15,753 22,911 59,890 12,750 15,752 20,466 27,350 76,318 $ $ 26,760 $ $ SHOEPERAMA NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2018 UNAUDITED - See "Notice to Reader" 3. DUE TO SHAREHOLDER The amount due to the shareholder bears interest at a rate determined annually and has no fixed terms of repayment. Interest paid for 2018 was AU$1,823 (2017 - AU$6,831) LONG-TERM DEBT Bank term loan bearing interest at prime plus 2%, repayable in monthly principal instalments of AU$2,100.00 plus interest to November 2023, secured by a general security agreement on the assets of the company and a personal guarantee from the shareholder. 2018 2017 AU$ 111,300 AU$ - Less current portion 25,200 AU$_86,100 AUS - Approximate principal repayments are as follows: 2004 AU$ 2005 2006 2007 AU$ 25,200 25,200 25,200 10,500 86,100 5. STATED CAPITAL Authorised: Unlimited number of Common shares Unlimited number of non-cumulative, redeemable, voting, Class "A" Special shares 2018 Issued: 1 Common shares 2017 1 AU$__1 AU$_ SHOEPERAMA BALANCE SHEET AS AT DECEMBER 31, 2018 SHOEPERAMA UNAUDITED - See "Notice to Reader" 2018 2017 ASSETS AUS AUS CURRENT Cash Accounts receivable Deposits and prepaid expenses Inventory 11,552 42,970 2,942 159,144 216,608 50,595 2,688 156,657 209,940 PROPERTY, PLANT AND EQUIPMENT (Note 2) 59,890 76,318 INVESTMENTS AU$ 276,498 45,001 AUS 331,259 LIABILITIES AUS AUS CURRENT Bank overdraft Bank loan Accounts payable and accrued liabilities Long-term debt - current portion Income tax payable 9,474 60,000 91,343 82,053 25,200 14,387 121,640 160,817 DUE TO SHAREHOLDER (Note 3) 51,591 231,791 LONG-TERM DEBT (Note 4) 86,100 259,331 392,608 SHAREHOLDER'S EQUITY STATED CAPITAL (Note 5) RETAINED EARNINGS (DEFICIT) 17,166 17,167 276,498 (61,350) (61,349) AU$ 331,259 AU$ SHOEPERAMA STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 2018 UNAUDITED-See "Notice to Reader" 2018 2017 REVENUE AU$ 1,104,786 AU$ 1,133,736 COST OF SALES Opening inventory Delivery Purchases 156,657 1,607 740,994 899,258 159,144 740,114 146,278 1,249 794,101 941,628 156,657 784,971 Closing inventory GROSS PROFIT 364,672 348,765 OPERATING EXPENSES (schedule) 286,817 339,905 INCOME FROM OPERATIONS 77,855 8,860 (387) OTHER INCOME (EXPENSES) Loss on disposal of property, plant and equipment Gain on sale of investment Miscellaneous 16,149 (1,101) 337 (50) 15,048 NET INCOME BEFORE TAX 92,903 8,810 INCOME TAX EXPENSE 14,387 NET INCOME 78,516 8,810 (DEFICIT) - Beginning of Year (61,350) (54,160) DIVIDENDS (16,000) RETAINED EARNINGS (DEFICIT) - End of Year AU$ 17,166 AU$ (61,350) SHOEPERAMA STATEMENT OF CASH FLOW FOR THE YEAR ENDED DECEMBER 31, 2018 UNAUDITED - See "Notice to Reader" 2018 2017 AUS 78.516 AUS 8,810 CASH FLOWS FROM OPERATING ACTIVITIES Net income for the year Adjustment for: Amortisation Loss on disposal of property, plant and equipment Gain on disposal of investment Cash derived from operations 17,854 16,856 387 (16,149) 80,221 26,053 Decrease increase) in working capital items Accounts receivable Deposits and prepaid expenses Inventory Accounts payable and accrued liabilities Long-term debt - current portion Income tax payable Cash flows from operating activities 7,625 (254) (2,487) (9,290) 25,200 14,387 115,402 23,380 688 (904) 34,543 2,206 85,966 (1,426) (10,342) 3,113 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Proceeds from disposal of investment Dividends Cash flows from investing activities 61,150 (16,000) (23,229) 59,724 CASH FLOWS FROM FINANCING ACTIVITIES Advances from (repayments to) shareholder Acquisition of (repayment of) long-term debt (150,000) (180,200) 86,100 (94,100) (150,000) 81,026 (87,263) NET INCREASE (DECREASE) IN CASH RESOURCES CASH (DEFICIENCY) RESOURCES - Beginning of Year (69,474) 17,789 CASH RESOURCES (DEFICIENCY) - End of Year AU$ 11,552 AU$ (69,474) Cash resources (deficiency) is comprised of: Cash Bank overdraft Bank loan AU$ 11,552 AU$ (9,474) (60,000) (69,474) AU$ 11,552 AU$ SHOEPERAMA SCHEDULE OF OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2018 UNAUDITED - See "Notice to Reader" 2018 2017 OPERATING EXPENSES AU$ AU$ 18,801 17,854 199 30,715 16,856 179 9,356 4,035 5,510 4,779 11,876 13,155 Advertising Amortisation Bad debts Bank charges and interest Insurance Interest on long-term debt Legal and accounting Management fees Memberships and licences Office and general Rent and utilities Repairs and maintenance Subcontracting Supplies Travel Wages and benefits Vehicle 3,212 12,382 18,795 4,289 19,825 4,571 3,736 142,713 5,120 286,817 11,766 12,525 3,413 15,155 21,955 4,979 18,692 8,557 8,003 168,806 4,913 339,905 AU$ AU$ SHOEPERAMA NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2018 UNAUDITED - See "Notice to Reader" 1. SIGNIFICANT ACCOUNTING POLICIES AND GENERAL INFORMATION Nature of Business The company is a private corporation in Australia, subject to the Corporations Act, 2001, was incorporated in November 2005 and operates as a manufacturer of Shoes in Melbourne. Significant Accounting Policies INVENTORY The inventory is valued at the lower of cost or market, with cost being determined on a first-in, first-out basis. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost less accumulated amortisation. Amortisation is recorded at rates designed to amortise the cost of capital assets over their estimated useful lives. Amortisation rates used are as follows: Furniture and equipment Vehicle Computer equipment Leasehold improvements 20% declining balance 30% declining balance 30% declining balance straight-line 5 years 2. PROPERTY, PLANT AND EQUIPMENT Net Book Value Accumulated Amortisation Net Book Value 2017 Cost 2018 $ $ $ Furniture and equipment Vehicle Computer equipment Leasehold improvements 21,500 26,486 22,210 37,350 47,986 11,300 $ 15,460 6,457 10,200 11,026 15,753 22,911 59,890 12,750 15,752 20,466 27,350 76,318 $ $ 26,760 $ $ SHOEPERAMA NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2018 UNAUDITED - See "Notice to Reader" 3. DUE TO SHAREHOLDER The amount due to the shareholder bears interest at a rate determined annually and has no fixed terms of repayment. Interest paid for 2018 was AU$1,823 (2017 - AU$6,831) LONG-TERM DEBT Bank term loan bearing interest at prime plus 2%, repayable in monthly principal instalments of AU$2,100.00 plus interest to November 2023, secured by a general security agreement on the assets of the company and a personal guarantee from the shareholder. 2018 2017 AU$ 111,300 AU$ - Less current portion 25,200 AU$_86,100 AUS - Approximate principal repayments are as follows: 2004 AU$ 2005 2006 2007 AU$ 25,200 25,200 25,200 10,500 86,100 5. STATED CAPITAL Authorised: Unlimited number of Common shares Unlimited number of non-cumulative, redeemable, voting, Class "A" Special shares 2018 Issued: 1 Common shares 2017 1 AU$__1 AU$_
