5.

FINANCIAL ASPECT
This chapter will show the projected figures on how the business will be operated. In this
chapter, assumptions are presented that will be governed in this study. The projected
annual financial statements for five years will also be presented with a purpose of aiding
the proponents in determining the profitability of the business given the present economic
conditions. Furthermore, this chapter will provide financial analyses that are relevant to
the study.
5.1 Major Financial Assumptions

 The entity will prepare its annual Projected Financial Statements, consisting of the
Projected Statement of Financial Position, the Projected Statement of
Comprehensive Income, Projected Statement of Owner’s Equity, Projected
Statement of Cash Flows and the Notes to the Financial Statements, in accordance
with the provisions of the Generally Accepted Accounting Standards in the
Philippines for micro-entities engaging business in the country, with appropriate
guidance from the Philippine Financial Reporting Standards (PFRS) of the
Financial Reporting Standards Council (FRSC).
 The entity shall observe stern compliance with other regulatory requirements
applicable to the nature of its business.
5.2 Supplementary Assumptions

As to the entity’s business operations

 The entity shall commence its business operations on January 01, 2020. The entity
shall follow a 12-month fiscal year ending every December 31 in the preparation
of its Projected Financial Statements.
 Upon commencement, the entity shall operate at full capacity on the first year of
operations, and shall subsequently operate at the same capacity on a going
concern basis until liquidation.
As to Market Share
 The entity’s market for the five-year forecast shall remain constant at 50% of the
total flavored shake sellers inside the Café Atenista of Ateneo de Zamboanga
University.
As to Inflation Effect
 The annual inflation rate shall be
As to Cash
 A cash-basis of accounting shall be strictly observed.
As to Merchandise Inventory
 The entity shall assume the process costing system and use First-in first-out
(FIFO) costing. The entity will operate for approximately 360 days every year.
As to Supplies Inventory
 The entity shall assume that all supplies purchased are consumed within the same
year, the rate of which is subject to inflation.
As to Property, Plant and Equipment (PPE)
 The initial measurement, recognition, and subsequent measurement shall be
reported in accordance with PAS 16: Property, Plant and Equipment, using the
cost model on initial and subsequent measurement.
 All depreciable PPE shall be depreciated depending on their estimated useful lives
respectively.
 All fully depreciated PPE shall remain in the entity’s custody unless considered
otherwise.
Property, Plant, and Equipment Useful Life (Years)

Freezer 10
Blenders 10
Electric Fan 10
Table 10
Table 25 List of the PPE with their corresponding useful lives.
As to Liabilities
 The entity shall assume no liabilities. All expenditures shall be paid directly
through cash.
As to Tax
 The full amount of Net Income/Loss is assumed to be the only profit/loss
generated by the proprietor.
 The business will be subject to Other Percentage Tax of 3% of gross sales.
As to Owner’s Equity
 The entity shall maintain a single equity account under the name of one of the
partners.
  Drawings shall be debited directly to the equity account, and shall be made on the
discretion of management.
 The proponents assumed that the proprietor will not withdraw any asset from the
business within 5 years after initial operation, thus the cash earned will
continuously be reinvested in the business.
As to Sales
 All sales are computed based on the projected annual sales (see Marketing Aspect
Table 11 page 24). There will be an increase of ₱2.00 in price every year after the
first year of operation to keep up with the yearly inflation.
As to Cost of Sales
 For inventory costing, the entity shall base direct material cost on the prices of a
partner suppliers, entitling the entity to have a consistent per kilo cost per annum,
subject to a yearly increase based on inflation rates.
 For direct labor, the entity shall capitalize the compensation provided to the
production worker as part of the cost of its inventories.
 For overhead, the entity shall capitalize all overhead, with fixed overhead, such as
rental fee, assumed to have been incurred in full due to operating at full capacity.
 The inflation effect of 2.67% shall be applied annually on a compounded basis on
all raw materials
As to Salaries and Compensation
The assumption on employee salaries and compensation is discussed further on the
Management Aspect of this paper.
5.3 Sources of Financing
After considering all the costs related in starting up the business, an established start-up
capital will be considered the capital fund that will suffice in running the business.
Table 26 Options for the source of financing
Given that all options were considered, the proponents of the feasibility study have come
up with the consensus that the first option is the best option, where the owner shall
provide the entire amount of ₱150,000.00 to cover up all the costs needed to start the
business.
The proponents’ decision was based on several grounds. First, availing loans will take
time because the bank will need to check the credentials of the entity and its background.
Secondly, the business is just starting and it will be troublesome to pay interest that will
be established from the loan agreement. Lastly, there is a risk of losing property used as
collateral against the loan.
5.4 Financial Statements

Financial statements are used to determine the ability of a business to generate cash, and
the sources and uses of that cash. Further, it is used to determine whether a business has
the capability to pay back its finances. The annual report that contains the firm’s financial
statements is one of the most important resources of reliable financial data. Regarding all
the data used in the financial statements and all the assumptions stated above are
faithfully adhered to and followed by the business entity.
The financial statements to be presented are based on the projected amounts in a five-year
operating period. These statements are as follows:
1. Projected Income Statements
2. Projected Statements Changes in Owner’s Equity
3. Projected Statements of Cash Flow
4. Projected Statements Financial Position