Attached are financial statements for Attila Ltd. for the year that just ended. The company is considering a new strategy for the upcoming year with the following elements:
The new marketing manager has convinced the owners to boost the marketing budget. The company will now spend 20% more than last year on advertising and promotion, and as a result expects sales to increase by 25% in the coming year.
The cost of goods sold is expected to be lower, dropping by 5 percentage points relative to sales.
They also plan keep the same closing inventory level as in the previous year, even though their sales are expected to be higher. They will achieve this by buying $55,000 of new equipment that will make the company’s manufacturing operations more efficient. The new equipment is expected to be delivered on June 30th, and will be financed entirely by an equipment lease. It will and will be depreciated over 10 years (all capital assets are depreciated on a straight-line basis). This new equipment will add $15,000 to current annual maintenance costs.
All other accounts will maintain their current proportion to sales revenues, except as follows:
Salaries are expected to go up by 3.5%
The income tax rate will remain the same.
No new shares will be issued. But the paid dividends will increase by 50%.
Annual depreciation amounts for the existing assets will stay the same.
Existing long-term liabilities and capital assets will be unchanged.
A regularly scheduled rent increase of 15% is scheduled for July 1st.
ASSIGNMENT:
Write a proforma income statement, balance sheet, cashflow, and statement of retained earnings for Attila Ltd. for the upcoming year. Use Cash as the “plug” number on the balance sheet.
Attila Ltd.
Income Statement
For the Year Just Ended
(in $ thousands)
Sales Revenue
1525
Less Cost of Goods Sold:
Opening Inventory
425
Add: Purchases
780
Closing Inventory
505
Cost of Goods Sold
700
Gross Profit
825
Operating Expenses:
Rent and Occupancy
180
Salaries/Bonuses
225
Ad & Promo
88
Maintenance
58
Building depreciation
20
Furniture depreciation
12
Vehicle depreciation
30
TOTAL OpEx
613
Earnings Before Tax (Operating Income)
212
Income Tax
34
Net Income
178
Attila Ltd.
Statement of Retained Earnings
For the Year Just Ended
(in $ thousands)
Opening Retained Earnings
482
Plus: Net Profit (Loss)
178
Minus: Dividends
80
Closing Retained Earnings
580
Attila Ltd.
Balance Sheet
As at Year-End
(in $ thousands)
Current Assets
Cash
49
Marketable securities
65
Accounts receivable
283
Inventory
505
Total current assets
902
Property, Plant & Eqpt
Land
320
Buildings
550
Accumulated depreciation
(180)
Furniture & fixtures
126
Accumulated depreciation
(47)
Motor vehicles
177
Accumulated depreciation
(125)
Total PP&E
821
Total Assets
1,723
Current Liabilities
Bank overdraft
208
Accounts payable
165
Total current liabilities
373
Long-term Liabilities
LT Bank Loans
195
Shareholder Loans
225
Total LT liabilities
420
Shareholder Equity
Preferred shares
150
Common shares
200
Retained earnings
580
Total shareholder equity
930
Total Liabilities & Shareholder Equity
1,723
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