Week 3 Individual Case Study Assignment 1 Cash flow forecasts and projected fina
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Question
Week 3 Individual Case Study Assignment 1
Cash flow forecasts and projected financial statements
For the following Individual Case Study, you assume the role of someone who has been asked to provide a Business Report for a group of friends who have invested in an organisation, Fashion Clothing. They had heard you are taking an Accounting and Finance Module and have asked for your advice.
The scenario
A group of friends have formed a new business called Fashion Clothing, an online and mail-order clothing business, in which they have invested £200,000 of their own capital. They intend to manufacture and sell quality clothes. They have set up the business and are selling direct to the final consumer, using a combination of aggressive marketing across a range of different media and also with the use of an automated Web site that accepts online orders. To support this, they also have a department of telephone sales and support staff ready to help customers. The sales staff work in teams and receive a basic salary plus commission for each successful sale. By the start of July 20X5, they have spent £150,000 on tangible non-current assets, and they currently have the remaining £50,000 in their business bank account.
They provide you with the following forecasted figures for their first 6 months of trading:
£
Sales for the next 6 months
1,350,000
Cost of the materials used up in sales
390,000
Labour costs for the 6 months
480,000
Other expenses for the 6 months, including marketing costs and £15,000 depreciation of tangible non-current assets
345,000
Materials purchased during the 6 months
520,000
Their projected cash receipts and payments are estimated to be as follows:
Month (20X5)
Sales Receipts
Payments for Materials
Labour and Other Expenses
£
£
£
July
150,000
120,000
These payments are divided equally over each of the 6 months.
August
120,000
100,000
September
150,000
60,000
October
210,000
60,000
November
260,000
60,000
December
285,000
60,000
Totals
1,175,000
460,000
In addition to the above, they expect to have to pay a tax bill of £20,000 in December 20X5 and also plan to buy (and pay for) £30,000 additional tangible non-current assets in that same month. All transactions will go through their business bank account.
Required
You are asked to provide a Business Report (1,000 words for the main body of the report) for the friends who have invested in Fashion Clothing, commenting on the business’ prospects and including the following five financial statements:
Since none of the investors have a background in accounting and finance, you should also explain what each of these statements means as a part of your report.
Keep the following in mind:
Ideally a business report should be produced with a suitable structure and quality of discussion around the following key areas:
Executive summary
Table of contents
List of figures
2.1 Summary of the first 6 months business operations
2.2 Financial accounting statements
3.1 Initial analysis in context of the three financial statements.
3.2 Investigations to increase efficiency
ANNEX I: Statement of financial position Fashion Clothing – 01.07.20X5 and 31.12.20X5
ANNEX II: Income statement Fashion Clothing – 6 months to 31.12.20X5
ANNEX III: Statement of cash flows Fashion Clothing – 6 months to 31.12.20X5
ANNEX IV: Projected cash flow forecast for the first 6 months of trading
To complete the assignment:
£
Sales for the next 6 months
1,350,000
Cost of the materials used up in sales
390,000
Labour costs for the 6 months
480,000
Other expenses for the 6 months, including marketing costs and £15,000 depreciation of tangible non-current assets
345,000
Materials purchased during the 6 months
520,000
Explanation / Answer
Note: Interest on Bank overdraft not provided for.
Ans
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Ans5
Online Business Balance Sheet Jul-31 Assets Amount Amount Plant and equipment, net of depreciation 1,50,000.00 Non-Current Assets 1,50,000.00 Bank Account 50,000.00 Current Assets 50,000.00 Total 2,00,000.00 Liabilities and Stockholders’ Equity Common stock 2,00,000.00 Retained earnings Add:Net Profit Total liabilities and stockholders’ equity 2,00,000.00Related Questions
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