Question

Exercise 2: Case study: Ivor Shop (40 points) Ivor Shop is proposing to open a shop on 1 July 2019 to sell me shop on 1 July 2019 to sell micro-computers and associated softwa He has $10,000 in his bank account for opening capital is obtaining the shop premises on a lease and the rent will be $8,000 per annum arterly in advance in July, October.January hi. No premium is being paid for the least funt will have to pay both his own and the land od Slegal costs as soon as he takes the leased are expected to amount to $400 in total Ivor will have to fit the shop out. He expects to acquire the shop fittings on hire purchase terms This will involve a down payment of $2.500 in July and monthly payment of $215 for each of the nex 24 months. He will depreciate the shop fittings at the rate of $1,200 each year He expected to pay rates of $360 in August, and $960 in October and $900 in Anrit For the first two months, while trade is building up, he will not employ any staff, but starting 1 September he expects to employ a sale assistant who will receive $500 per month salary He estimates his sales will be as follows: July 3,000 August 3,600 September 4,500 October 4,500 November 6,000 December 6.000 January February March April 7,500 7.500 9,000 9.000 12 000 12,000 May June All sales will be made for cash His selling price will be set at 50% above his cost price He will replace all stock sold in the same month that the sale takes place. For the first six months he expects to pay cash for his purchases, but for all purchases thereafter confidently expects to be able to get a month's credit from his suppliers He will purchase an initial stock costing $15,000 on 1 July 2019 Other business expenses are estimated at $250 per month An aunt is lending Ivor $5,000 as an interest-free loan from the 1st July insists that she must be repaid this loan in January 2020 when she has a large income tax bill to pay Ivor will draw $400 a month from the business for personal living expenses Ignore any bank charges or interest on the overdraft. months of work of Ivor (use the format of You are required (1) To prepare forecasted cash flow for the forecasted Cash Flow) - 20 points. o calculate expected financial result ofa preparing Income statement - 20 points t ivity of Ivor Shop business for mennst year

Answer 1

​​​​​​The best way to solve this type of questions is to accumulate all the relevant information in systematic format at one place before solving it , as shown in the first image. Once all the information gets accumulated at one page , rest everything is easy. It is just to put it in the format of cash flow.

Further , it is advisable to the organisation to go for Just in time system as the initial purchase of 15,000 stock is leading to negative cash flow for the first 11 months.

* Given IN ormation Accumulation - - Opening Bank Balance - $10,000/- - Rent : $8,000 poce. ($2.000 Per quatre Adre - Legal Costa $400 downpay pent = $2,500 - Rent - $215 per month (installment ) los 24 months. depreciation $ 1,200 per year. - Rates :- $360 August. $ 960 = October $ 980 April. - Sales salary a7 from let September $500 pm - 7 sor test 27 soy. of Additional Sales To to Cost. 6 - Payment To Creditors > O some month for 6 montty! b ol to ① Thereafter , 1 month Credit. - Initial Stock Purchase - $ 15.000 - Other expenses a $250 pm. - loan on or of $5,000 Repay on lol of $5,000. - Drawings : $ 5 400 pm

* Page - o Cash Flow statement for 12 months - 2 3 4 5 6 7 8 3,000 3,600 4,500 4,500 6,000 6.000 7.500 7.500 Sales 9 10 ur 9.000 9000 12 Purchase (17,000 2,400) (3,000) (3,000) (4,000) (2.000) - (Soco) (5000) (6000 6 Rent (20001 (2000) (2000) legal Cost (400) downpayment (2,500) - Installment (215) (215) (215) (215) (215) (215) (215) (215) (215) (215) (215) (215) Rates (360) (960) (180) Sales Salary (Soo) (500) (500) (500) (500) (500) (5cc) (50st (30) Other expo (250)(250) (250)(250(250) (250) (250) (250) (250) (250)|(250) (259 Loon 5000 (5cco) drawings (400) (400) (400) (400) (400) (400) (400) (400) (400) (400) (400) (40) - Net Cash Oring -19,7655,335275-1865-325 635 4,135-3865 2635 - 365 3655 2635 10,000 (1,765 (4430) (4,155) - 6020-6345-ST101-1575-5440-28051-3176 485 Cash Closing 6,765) 4430) 4,155-6029-6345-5710 -15754-5440-2805-3170 485)320 |

Income statement :- 2.000 sales: 84,600 9000 (56,400) Cost Rent legal depreciation Rates За (8.000) (400) (1,200) (2,300) (6.000) (3.000) other Жооху emp Net Profit 7,30012. 635 drawings (4.800) 85 Net 2. Soo.