Prime Rubber Industries

Executives of Prime Rubber Industries finished their series of planning meetings and arrived at the

business plan for the next financial year. The plan is summarized below:

$($a$)$ The company plans to earn a profit after tax of $`3,850,000.$ Income taxes are expected to be

$30\%$ of the earnings.

$($b$)$ During the year, shares of the face value of $`2,800,000$ will be issued, at a premium of $100\%.$

$($c$)$ An office block will be purchased at a down payment of $`3,500,000$ by taking on a mortgage,

at the rate of $10$ percent interest per annum, for the like amount.

$($d$)$ Plant and equipment costing $`2,300,000$ will be added to the factory on the basis of deferred

payments to be made in $5$ equal annual instalments, beginning with the date of acquisition.

$($e$)$ Accounts receivable are to be maintained at the level of one month$$s sales. Inventory stock

was expected to be $`50,00,000$ of which $60\%$ will be raw material. Average credit available

will be about $30$ days purchases.

$($f$)$ It is expected that during the plan period, actual operations may be for $300$ days.

$($g$)$ Operating expenses projections for the period are as follows: Raw material cost will be $30\%$

of sales revenue; Wages will be $10\%$ of sales revenue; other direct manufacturing expenses

will be $10\%$ of sales revenue.

$($h$)$ Administrative expenses are projected to be $`25,00,000.$ Selling and distribution expenses are

projected to $`18,00,000.$

$($i$)$ Depreciation of plant and machinery is calculated on the basis of $10\%$ straight line and

buildings, of $2\mathrm{.}5\%$ straight line.

Prime Rubber Industries

Balance Sheet as on December $31,2$X$10($all figures in $`000)$

Amount Amount

Assets Liabilities and Owners Equity

Cash $500$ Accounts payable $1,500$

Accounts receivable $3,000$ Bank overdraft $3,500$

RM inventory $3,880$ Current Liabilities $5,000$

FG inventory $1,000$

Prepaid rent and insurance $120$

Current Assets $8,500$

Land $300$ Owner$($s$)$ Equity

Plant and equipment $1,400$ Share capital $1,000$

Less: Accumulated depreciation $700700$ Share premium $1,000$

Goodwill $1,000$ Retained earnings $3,500$

Total Assets $10,500$ Total Liabilities & Owners$$ Equity $10,500$

Question

Based on the above information, prepare a projected income summary for the plan period and a

balance sheet as at the end of the plan period.