Q2 Fast Solutions John Wise, a sole trader and computer science graduate, wants to expand his IT consultancy business called Fast Solutions. John operates from home, but is now considering relocating to a rented office from the start of January 2005. Abby, a graduate in accounting and finance is looking for business opportunities and has saved S2 000 to be used as her own start-up capital. She is considering the option of forming a business partnership with John. Abby is impressed by Fast Solutions 's level of profit for 2004, but would like John to produce a cash flow forecast for 2005 before she makes a decision on forming a business partnership with him. John has produced forecasted sales revenue and costs for January to June 2005: John expects to receive monthly revenue of $1 000. 60% of this will be paid in cash with the remaining 40 % received one month later. Electricity bill $100 per month Telephone bill $250 Advertising $150 per month Office rent $3.000 annual charge to be paid in equal instalments in February and April per annum to be paid in March Finance charge $50 per month Personal drawings 50% of the monthly total revenue Opening cash balance for January $500 (b) Construct a cash flow forecast for Fast Solutions for each month from January to June 2005. [6 marks] (c) Explain the difference between Fast Solutions's cash flow and its profit and why Abby wants John to produce a cash flow forecast. [3 marks] (d) Evaluate three strategies John Wise could implement to improve FastSolutions's cash flow position. [6 marks]
Q2 Fast Solutions John Wise, a sole trader and computer science graduate, wants to expand his IT consultancy business called Fast Solutions. John operates from home, but is now considering relocating to a rented office from the start of January 2005. Abby, a graduate in accounting and finance is looking for business opportunities and has saved S2 000 to be used as her own start-up capital. She is considering the option of forming a business partnership with John. Abby is impressed by Fast Solutions 's level of profit for 2004, but would like John to produce a cash flow forecast for 2005 before she makes a decision on forming a business partnership with him. John has produced forecasted sales revenue and costs for January to June 2005: John expects to receive monthly revenue of $1 000. 60% of this will be paid in cash with the remaining 40 % received one month later. Electricity bill $100 per month Telephone bill $250 Advertising $150 per month Office rent $3.000 annual charge to be paid in equal instalments in February and April per annum to be paid in March Finance charge $50 per month Personal drawings 50% of the monthly total revenue Opening cash balance for January $500 (b) Construct a cash flow forecast for Fast Solutions for each month from January to June 2005. [6 marks] (c) Explain the difference between Fast Solutions's cash flow and its profit and why Abby wants John to produce a cash flow forecast. [3 marks] (d) Evaluate three strategies John Wise could implement to improve FastSolutions's cash flow position. [6 marks]
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![Q2 Fast Solutions
John Wise, a sole trader and computer science graduate, wants to expand his IT consultancy
business called Fast Solutions. John operates from home, but is now considering relocating
to a rented office from the start of January 2005. Abby, a graduate in accounting and
finance is looking for business opportunities and has saved S2 000 to be used as her own
start-up capital. She is considering the option of forming a business partnership with John.
Abby is impressed by Fast Solutions 's level of profit for 2004, but would like John to
produce a cash flow forecast for 2005 before she makes a decision on forming a business
partnership with him.
John has produced forecasted sales revenue and costs for January to June 2005:
John expects to receive monthly revenue of $1 000. 60% of this will be paid in cash with the
remaining 40 % received one month later.
Electricity bill
$100
per month
Telephone bill
$250
Advertising
$150
per month
Office rent
$3.000
annual charge to be paid in equal instalments in
February and April
per annum to be paid in March
Finance charge
$50
per month
Personal drawings
50%
of the monthly total revenue
Opening cash balance
for January
$500
(b) Construct a cash flow forecast for Fast Solutions for each month
from January to June 2005.
[6 marks]
(c) Explain the difference between Fast Solutions's cash flow and its profit
and why Abby wants John to produce a cash flow forecast.
[3 marks]
(d) Evaluate three strategies John Wise could implement to improve
FastSolutions's cash flow position.
[6 marks]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fba23ce01-0d8d-4eb1-8c26-3f9982c4fb09%2Fdfe85589-002b-4bdd-9b17-1a18372a8426%2Fc67dadi_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Q2 Fast Solutions
John Wise, a sole trader and computer science graduate, wants to expand his IT consultancy
business called Fast Solutions. John operates from home, but is now considering relocating
to a rented office from the start of January 2005. Abby, a graduate in accounting and
finance is looking for business opportunities and has saved S2 000 to be used as her own
start-up capital. She is considering the option of forming a business partnership with John.
Abby is impressed by Fast Solutions 's level of profit for 2004, but would like John to
produce a cash flow forecast for 2005 before she makes a decision on forming a business
partnership with him.
John has produced forecasted sales revenue and costs for January to June 2005:
John expects to receive monthly revenue of $1 000. 60% of this will be paid in cash with the
remaining 40 % received one month later.
Electricity bill
$100
per month
Telephone bill
$250
Advertising
$150
per month
Office rent
$3.000
annual charge to be paid in equal instalments in
February and April
per annum to be paid in March
Finance charge
$50
per month
Personal drawings
50%
of the monthly total revenue
Opening cash balance
for January
$500
(b) Construct a cash flow forecast for Fast Solutions for each month
from January to June 2005.
[6 marks]
(c) Explain the difference between Fast Solutions's cash flow and its profit
and why Abby wants John to produce a cash flow forecast.
[3 marks]
(d) Evaluate three strategies John Wise could implement to improve
FastSolutions's cash flow position.
[6 marks]
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