Creative Capital – Individual Assignment

Creative Capital - Individual Assignment

Creative Capital - Individual Assignment - June 2017

Green Limited (âGreenâ) is an Irish registered company which commenced trading on January 1, 2005.

The company has historically operated as a wholesale distributor of garden equipment and related products to garden centres around the country.

However, the directors of Green were concerned about the seasonality of the business and in 2014 a retail outlet was opened which sells a range of gardening accessories, decorative household items and giftware.

The retail outlet is located close to Dublin in a retail park adjacent to a motorway whilst the companyâs warehouse relating to the distribution business is located in Cork for historic reasons.

The directors are undertaking a review of the business and the financial controller has gathered the following relevant information so that a set of financial projections can be prepared in respect of the year ended December 31, 2018.

Terms of Business in relation to Sales

Wholesale

1 monthsâ credit

Retail Shop

Cash basis

Terms of Business in relation to Purchases

Green receives 1 monthsâ credit from its suppliers.

Sales

Wholesale Retail ⬠â¬

Sales in respect of 2017

December 12,500 140,000

Sales in respect of 2018

January 15,000 40,000

February 20,000 14,000

March 55,000 23,000

April 80,000 33,000

May 85,000 27,000

June 78,000 30,000

July 73,000 38,000

August 58,000 26,000

September 32,000 32,000

October 20,000 62,000

November 12,000 94,000

December 14,000 147,000

Sales in respect of January 2019 16,000 42,000

Projected Purchases

For the purposes of the projections, a mark-up on purchases of 25% can be assumed for the Wholesale business and a mark-up of 40% can be assumed for the Retail business.

Note: a mark-up of 25% on purchases of â¬100 will give a sales value of â¬125.

Purchases are made to meet sales demand in the following month.

Analysis of employees by function in the business

Wholesale Number Salary per annum

Van driver 1 â¬30,000

Warehouse 1 â¬30,000

Sales Manager 1 â¬36,000

Administration/Accounts 1 â¬40,000

Retail Shop Salary per annum

Sales staff 2 â¬25,000

Administration/Accounts 1 â¬48,000

The sales staff earn sales commission of 10% and this is paid in the month following the sale.

Other

The Financial Controllerâs salary is projected at â¬72,000 for 2018.

There are two Directors in Green both of whom have a projected salary of â¬120,000 for 2018.

Salaries will be paid each month on an even basis in 2018.

Expenses

The following expenses are projected for the business segments in respect of 2018:

Wholesale Retail

⬠â¬

Rent - 72,000

Rates 24,000 30,000

Heat and Light 34,000 44,000

Insurance 60,000 72,000

Motor expenses 36,000 see note*

Marketing - 50,000

Administration 10,000 24,000

Motor and Travel expenses of â¬96,000 are projected for 2018 and these relate to expenses incurred by the Financial Controller and the Directors of the company.

Central expenses of an administration nature relating to Professional fees and General expenses are projected to be â¬60,000 for 2018.

All of the above expenses are projected to be incurred evenly over the projected 12 month period and to be paid in the month in which they are incurred.

Non-Current Assets

Green owns the following non-current assets and the relevant information is detailed below:

Cost ⬠Accumulated Depreciation at 31.12.16

Buildings in Cork 350,000 84,000

Van re Wholesale basis 48,000 24,000

Warehouse in Cork 100,000 50,000

Motor Vehicles 1 80,000 36,000

Office equipment 60,000 24,000

The motor vehicles are driven by the Directors and Financial Controller of the company and the Office Equipment relates to the Retail business.

The non-current assets are depreciated per annum on a straight line basis with nil scrap values:

Buildings 2%

Van 20%

Warehouse equipment 10%

Motor Vehicles 20%

Office equipment 10%

Opening position

For the purposes of preparing the projected figures for 2018, the following figures can be assumed as the opening figures:

â¬

â¬

Non-Current Assets

520,000

Current Assets

Inventory

Wholesale

28,572

Retail

12,000

Trade receivables

12,500

Bank

100,000

Total Current Assets

153,072

TOTAL ASSETS

673,072

Share Capital

500,000

Retained Earnings

132,500

Total Equity

632,500

Non-current liabilities

-

Current Liabilities

Trade payables

40,572

Total Current Liabilities

40,572

TOTAL EQUITY &LIABILITIES

673,072

Note: the NCA figure of â¬520,000 is the cost less accumulated depreciation as detailed in the note above. Depreciation is calculated on the cost figure.

Required

Prepare a projected SOCI (Profit and Loss Account) in respect of each segment of the business and on a total basis for the year ended December 31,2018;
Prepare a projected cash flow for the whole business on a monthly basis for the year ended December 31, 2018;
Prepare a projected SOFP (Balance Sheet) as at December 31, 2018;
From your studies undertaken in the Creative Capital Module, what is meant by the term liquidity and discuss why it is crucial to prepare cash flows on a monthly basis;
Suggest ways in which Green might improve the profitability of the business.