Introduction to Business Management

PRACTICES TOPIC 3: FINANCIAL STATEMENTS

SOLUTION: Exercice 1

a) REVENUES/INCOME: Sales 1.930,0 m.u.

Revenues 1.930,0 m.u.

COLLECTION: Sales – Amount (not 1.615,0 m.u.

collected) (1,930 – 315.0)
Collections 1.615,0 m.u.

PAYMENTS: Material purchased 575 (700 – 125)

Personnel 375 (450-75)
Energy 0 (nothing paid)

Payments 1.206,0
EXPENSES/COSTS: Expenses
arises when we incur the obligation to pay (for example, personnel, raw materials, rent,
electricity, etc.) for the services received.

Raw materials costs 700,0

included in sold products
Personnel Expenses 450,0
Energy expenses 230,0

Depreciation1 (Total) 30,0

- Factory building 1.000/25*4 = 10,0
- Offices building 1.500/50*4 = 7,5
- Machinery 300/10*4 = 7,5
- Transport Equipment 100/5*4 = 5,0
Total Expenses 1.410,00

(Note: It is assumed that the entire raw materials purchases of 700,0 m.u. are included
as cost of goods sold.)

INVESTMENTS:

Given that the Practice establishes that the mentioned goods were acquired on the 31st
of December of previous year, there isn´t any data that indicates that any investment has
been done for the current year period being considered in the problem. Thus,
investments are considered to be ´0´.

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 Introduction to Business Management

PRACTICES TOPIC 3: FINANCIAL STATEMENTS

b) There will be no difference in Revenues, Collection, and Payments.

Since only half of the purchased material have been consumed in manufacturing, it will
affect only expenses and consequently the profit for the period.

EXPENSES/COSTS:

Raw materials costs 350,0

included in sold products
Personnel Expenses 450,0
Energy Expenses 230,0

Depreciation 30,0
- Factory building 1.000/25*4 = 10,0
- Offices building 1.500/50*4 = 7,5
- Machinery 300/10*4 = 7,5
- Transport equipment 100/5*4 = 5,0
Totale Expenses 1.124.00

(Note: The unused raw material will appear as inventory.)

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 Introduction to Business Management

PRACTICES TOPIC 3: FINANCIAL STATEMENTS

SOLUTION: Exercise 2

From the accounting point of view the Balance sheet will be,

ESTIMATED BALANCE AT OPERATIONS START

ASSETS (use) EQUITIES (resources)

Bank & Cash 4.500 Capital 60.000

Patent 30.000

Machinery 15.000

Raw materials 10.500

TOTAL 60.000 60.000

The Bank account has had the following movements,

Paid in capital (shareholders): +30.000

Machinery payment: -15.000

Raw Materials payment: -10.500

Balance: +4.500

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 Introduction to Business Management

PRACTICES TOPIC 3: FINANCIAL STATEMENTS

SOLUTION: Exercise 3:

BALANCE SHEET for Libby´s Company at the end of the current year

ASSETS LIABILITIES & OWNER´S EQUITY

CURRENT ASSETS 19.500 CURRENT LIABILITIES 17.000

Cash 500 Accounts payable 1.500

Money on its bank 3.000 Short-term loan debts 15.500

account

Accounts receivable 3.500

Stock of Raw materials 12.500

NON-CURRENT ASSETS 14.500 NON-CURRENT LIABILITIES 3.000

Furniture 1.500 Long-term loan debts 3.000

Equipment 13.000

OWNER´S EQUITY 14.000

Paid-in capital 12.000

Retained Earnings 2.000

TOTAL ASSETS 34.000 TOTAL OWNER´S EQUITY & 34.000

LIABILITIES

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 Introduction to Business Management

PRACTICES TOPIC 3: FINANCIAL STATEMENTS

SOLUTION: Exercise 4:

Income Statement for Hawkins Partners, taking into account that taxes on profits are 30%.

INCOME STATEMENT

Sales 130.800

Purchase of goods (sold 100%) -84.000

Variation of inventory -100

Income from rentals 10.500

Wages and salaries -12.700

Rent payment and royalties -1.000

Supplies -1.200

INCOME FROM OPERATIONS (EBIT) 42.300

Interests received from credits 15.200

Interests paid (company´s debt) -5.500

NET INCOME BEFORE TAXES 52.000

Income tax (30%) -15.600

NET INCOME 36.400

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 Introduction to Business Management

PRACTICES TOPIC 3: FINANCIAL STATEMENTS

SOLUTION: Exercise 5

a) (All figures in million €)

Revenues:

Gross Sales 2.002,0

Discounts 24,024 (2002x0,03x0,4)

Net Revenue/Sales 1.977,976

Expenses:

Cost of Goods Sold 962,0

Salary and Labour Costs 304,2 (7800x30000)x(1+0,3)

Operating expenses 457,0

Depreciation 120,0 (1200/10years)

Operating Profit/Income 134,776

EBIT (1977,976-expenses)

Interest Payment 13,5 (225x(0,04+0,02)

Income after Depreciation 121,276

and Interest (Net Income
Before Taxes)

Tax @ 30% 36,3828

Net Profit/Income 84,8932

Dividends (@50%) 42,4466

Retained Earnings 42,4466

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 Introduction to Business Management

PRACTICES TOPIC 3: FINANCIAL STATEMENTS

SOLUTION: Exercise 6

1. (Note: All figures are in monetary units (m.u.))

Before going to the Balance Sheet, we need to find the tax that has been paid by the
company X for the period (because they are needed to obtain the CASH for the Balance
Sheet), and also the Retained Earnings (will be displayed in the Owner´s Equity part of
the Balance Sheet). Hence, we first need to prepare the income statement.

Income Statement:

Total Sales 50,0

Cost of Goods Sold (10,0) 50% of raw materials
Labour expenses (10,0)
Depreciation (2,0) Land does not depreciate
Operating Income before tax 28,0
and interest (EBIT)
Interest Payment 0,0
Tax @ 30% (8,4) (1)

Net Profit 19,6 (2)

Retained Earnings (Assume that 19,6

no dividends have been paid.)

Next, we need to calculate the cash in bank. We follow the movements of money from
the bank as follows:

Cash in Bank = Initial Cash + Inflows – Outflows

= 100 ( Paid in Capital from Shareholders)

+ 37,5 (collected from customers =9/12*50, collection period =3 months)

- 20,0 (raw material purchase)

- 20,0 (land purchase)

- 20,0 (equipment purchase)

- 10,0 (labour expense)

- 8,4 (tax expense) (1)

= 59,10 m.u. (3)

(Note that depreciation expense does not have a cash flow implication.)

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PRACTICES TOPIC 3: FINANCIAL STATEMENTS

Balance Sheet (For the period ending 12/31/2023): (All figures are in m.u.)

ASSETS EQUITIES

Current Assets Liabilities

Cash (3) 59,1 (3) Current Liabilities 0

Accounts Receivables 12,5 (=50-37,5) Non Current Liabilities 0

Inventory 10,0 (50% of 20) Total Liabilities 0

Total Current Assets 81,6

Non Current Assets Shareholder´s equity

Land 20 (not Paid in Capital 100,0

depreciated)

Equipment (20 less 18 Retained Earnings 19,6 (2)

depreciation of 2)

Total Non Current Assets 38

Total Assets 119,6 Total Equities 119,6

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