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.

The solution shared before for this question has lots of calculation errors and explaination was also not clear. Please help in sharing detailed solution.