Company has 10% net profit margin on sales in previous years and expects to maintain the same next year. The Business is expected to increase its sales level from P1,000,000 to P1 255 000. The percentages of current sales and current liabilities that have direct relationship with sales are 60% and 35%, respectively. Out of the total earnings at are expected to be realized next year, 25% will be retumed to the shareholders in the form of dividends. Compute the following: 5. Projected increase in current assets 6. Spontaneous increase in current liabilities 7. Increase in retained earings 8. Additional fund needed.
Company has 10% net profit margin on sales in previous years and expects to maintain the same next year. The Business is expected to increase its sales level from P1,000,000 to P1 255 000. The percentages of current sales and current liabilities that have direct relationship with sales are 60% and 35%, respectively. Out of the total earnings at are expected to be realized next year, 25% will be retumed to the shareholders in the form of dividends. Compute the following: 5. Projected increase in current assets 6. Spontaneous increase in current liabilities 7. Increase in retained earings 8. Additional fund needed.
Chapter4A: Nopat Breakeven: Revenues Needed To Cover Total Operating Costs
Section: Chapter Questions
Problem 2DQ
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The pictures is the formula and example.
Compute the additional funds needed.
JHOPE "I am your hope" Company has 10%
net profit margin on sales in previous years
and expects to maintain the
same next year. The Business is expected to
increase its sales level from P1,000,000 to P1
255 000.
The percentages of current sales and current
liabilities that have direct relationship with
sales are 60% and 35%,
respectively. Out of the total earnings at are
expected to be realized next year, 25% will be
retumed to the shareholders
in the form of dividends.
Compute the following:
5. Projected increase in current assets
6. Spontaneous increase in current liabilities
7. Increase in retained earings
8. Additional fund needed.
Transcribed Image Text:Spontaneous
current liabilities
increase in
Change in sales
(present)
current liabilities
Sales (present)
980,000
7,000,000
(10% x 7,000,000)
14%%
700,000
98,000
The next procedure is to determine the expected eamings after tax by preparing a projected statement of comprehensive
income.
7,700,000.00
4,620,000.00
3,080,000.00
1,925,000.00
1,155,000.00
245,000.00
910,000.00
273,000.00
637,000.00
Sales (P7,000,000 x'1.10)
Less: Cost of sales (P7,700,000 x 60%)
Gross Profit
Less: Operating expense (P7,700,000 x 25%)
Income before interest and taxes
Less: Interest expense.
Inome before taxes
Less: Income tax (P910,000 x 30%)
Net income after tax
The amount f dividends to be distributed to the shareholders is P382,200 computed as follows:
Dividends (637,.000 x 60%) = 382,200
The increase in retained earnigs amounts to P254,800 (637,000 - 382,200).
Based on the above computations, the mount of additional funds needed is computed as follows.
projected
increase in
Spontaneous
increase in
Increase in
Additional
fund needed
retianed
current
assets
eamings
liabilities
420,000.00 -
98,000,00-
254,800.00
67,200.00
Transcribed Image Text:ng an
Additional
fund
needed
Spontaneous
increase in
current
liabilities
Increase in
retained
eamings
projected
increase in
%3D
assets
projected
increase in
assets
current assets
(present)
Change in
sales
%3D
Sales (present)
Spontaneous
increase in current
Change in
sales
current liabilities
(present)
liabilities
Sales (present)
Increase in
Earnings
after tax
Dividend payment,
retained
earnings
ILLUSTRATION:
Yvonne Manufacturing company presents the ff. information related to 2018 result of operation:
Sales
Current Assets
Non current assets
current-liabilities
non current liabilities
ordinary shares
retained eamings
7,000,000
4,200,000
2,800,000
980,000
770,000
4,200,000
| 1,050,00
The cost of sales is 60% of sales and the operation expense is 25% of sales. The interest expense amount to 240,000.
The applicable tax rate is 30%. The company expects to maintain this relationship in the 2019 operation and plans to
pay 60% of the income as dividends to shareholders.
Because of higher demands of the product and increased share in market, the business expects a 10% increase in sales
in 2019. Non current assets in 2019 are not expected to increase including non-current liabilities spontaneous to the
increase in sales)
REQUIRED:
1. Determine whether additional funds are needed because of the expected increase in sales.
2. Prepare the projected statement of financial position
nputed by determining first the projected increase in sales
Answer 1. The amount of additional funds if required
such as the following:
current assets
projected
increase in
Change in sales
(present)
assets
Sales (present)
(10% x 7,000,000)
4,200,000
7,000,000
60%
= 700,000
420,000
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