Reference no: EM132681874
Question - Allman Brothers Cleaning
Allman Brothers Cleaning is a family run business that provides domestic cleaning services in Melbourne. The business has 1 employee and is operated by Ron and Mikala Allman. You are preparing a Client Advice Plan and you need to establish what the operational state of the business is. They are wanting to grow the business and are seeing advice for business loans.
You must complete each of the tasks below and treat each question independently from all other parts.
a) Percentage summary income statements for the business of Allman Brothers for the years 2017 and 2018 are as follows:
2017 2018
Sales 100% 100%
Less Cost of Goods Sold 45% 65%
Gross Profit 55% 35%
Give reasons that may explain the gross profit variations as disclosed by the above percentage analysis.
b) The following ratio calculations were made for the Allman Brothers for 2017 and 2018:
2017 2018
Current Ratio 3.0:1 3.0:1
Liquid Ratio 1.2:1 0.8:1
Give reasoned opinion on the composition of the current and liquid assets and the short- term liquidity situation as disclosed by the above ratios. (Note: the firm does not have a bank overdraft)Task 2
Income Statement for the year ended 30 June 2017 $000's $000's
Sales (credit) $60,000.00
Less Cost of Goods Sold $50,000.00
Gross Profit $10,000.00
Less Operating expenses
Depreciation $2,000.00
Others $1,200.00
Interest $1,800.00 -$5,000.00 $5,000.00
Less Income Tax expense -$2,000.00
Net Profit Tax Expense $3,000.00
Balance Sheet as at 30 June 2018
Current Assets $6,000.00
Accounts Receivable $5,000.00 $11,000.00
Inventory Non-current Assets Land and Building $20,000.00
Plant $8,000.00
Accumulated Depreciation- Plant -$6,000.00 $2,000.00
Motor Vehicle $5,000.00
Accumulated Depreciation- Motor Vehicle -$3,000.00 $2,000.00
Goodwill $5,000.00 $29,000.00
TOTAL ASSETS $40,000.00
Current Liabilities
Accounts payable $500.00
Income Tax payable $1,000.00
Dividend payable $600.00
Bank overdraft $900.00 $3,000.00
Non -Current Liabilities
Unsecured Notes (20%) $5,000.00
Mortgage - Land & Building $12,000.00 $17,000.00
Total Liabilities $20,000.00
NET ASSETS $20,000.00
OWNERS EQUITY:
Share Capital preference Shares - $1 (5%) fully paid $2,000.00
Ordinary Shares - $1 paid to $0.50 cents $10,000.00
Retained earnings $2,900.00
General reserves $5,100.00 $20,000.00
Profit & Loss Appropriation statement for the year ended 30 June 2017
Retained Earnings 01/07/2013 $000's $000's
Net Profit after tax 1,000 3,000 4,000
Less Dividends provided for: Dividend Payable Preference Shares 100
Dividend Ordinary Shares 500
Interim dividend ordinary Shares paid 500 -1,100 $2,900.00
Additional Information $000's
Inventory 01/07/2018 $1,250
Accounts Receivable $1,000 market price of ordinary shares as at 30/06/2018 $62.5 cents per share
Equity 01/07/2018 $18,500
1. Calculate the following performance indicators show the formula used and the calculation for each:
a) Current ratio
b) Liquid Ratio
c) Inventory turnover (times p.a)
d) Average collection period for accounts receivable (365day year)
e) Total asset turnover
f) Debt to equity
g) Return on equity=operating Profit after Tax/Shareholders Equity
h) Interest coverage
i) Earnings per ordinary share
2. Complete the Client Information Form provided with this assessment for the case study
3. Provide suggestions for the client about their business performance by providing an overview of the business performance and options for continuance of the business for short and long term loan options
4. Assessment of the relevant significant taxation issues
5. Provide details of sources of all advice that you have used, including the relevant authorities and where was sourced from.