Question

PART II: (Total Marks = 50) Project: BARBELLE LADIES CLUB Expansion new investment would cost AED 850,000 to invest today. These assets will last for 5 years with no salvage value. The company uses a straight-line depreciation method. Management has prepared the projected income statements for 5 years given below. Year 1 Year 2 Year 3 Year 4 Year 5 Sales 400,000 450,000 500,000 550,000 550,000 Selling 60,000 65,000 65,000 65,000 70,000 expense 52,000 50,000 55,000 55,000 55,000 Rent expense Salaries expense Depreciation expense 53,000 55,000 55,000 60,000 60,000 150,000 150,000 150,000 Net Income Cash flows Question 1) Calculate Net Income and Cash flow for each year (Show your calculations). (10marks)

Answer 1

PARTICULARS	YEAR-0	YEAR-1	YEAR-2	YEAR-3	YEAR-4	YEAR-5
INITIAL INVESTMENT	(850,000)	-	-	-	-	-
SALES (A)	-	400,000	450,000	500,000	550,000	550,000
SELLING EXPENSE (B)	-	60,000	65,000	65,000	65,000	70,000
RENT EXPENSE (C)	-	52,000	50,000	55,000	55,000	55,000
SALARIES EXPENSE (D)	-	53,000	55,000	55,000	60,000	60,000
DEPRECIATION EXPENSES (E)	-	150,000	150,000	150,000	150,000	150,000
NET INCOME(F=A-B-C-D-E)	-	85,000	130,000	175,000	220,000	215,000
DEPRECIATION EXPENSE (G=E)	-	150,000	150,000	150,000	150,000	150,000
CASH FLOW (H=F+G)	(850,000)	235,000	280,000	325,000	370,000	365,000

NOTES :

1.ALL ABOVE FIGURES ARE IN AED

2.DEPRECIATION EXPENSE IS NON CASH EXPENSE HENCE IT IS ADDED BACK IN NET INCOME TO FIND OUT THE CASH FLOW.

3.INITIAL INVESTMENT IS AED 850,000 AND TOTAL DEPRECIATION AMOUNTS TO AED 750,000 THAT MEANS BALANCING AED 100,000 IS NON-DEPRECIABLE EXPENSE HENCE NOT CONSIDERED IN CALCULATION OF DEPRECIATION.