Example:

Before the end of 2020, the president of JSC Foods Corporation had instructed the
Vice President for Finance to prepare the 2021 projected financial statements based on
their most recent planning workshop. Based on the results of the planning, workshop, the
following assumptions were prepared for the 2021 projected financial statements.

a. Sales are expected to increase by 10% in 2021 from the 2020 sales level. This growth
assumption is based on the assessment of the external and internal factors related to JSC
Foods Corporation and the historical growth of the company. The company sales grew by
10.4% annually from 2016 to 2020.

b. The following financial statement accounts are expected to vary with sales based on
the 2014 financial statements:
i. Cost of Sales
ii. Cash
iii. Trade accounts receivable
iv. Inventories
v. Other current assets
vi. Trade accounts payable

Variable operating expense is 7.5% of sales. Depreciation expense is 10% of the

gross beginning balance of property, plant, and equipment. As of December 31, 2020, the
gross balance of PPE is P26,000,000. For January 2021, P5,000,000 new PPE will be
acquired. It is the policy of the company that PPE acquired in the first half of the year
will be depreciated for one full year.

c. As of December 31, 2020, there are two long-term loans. Both have annual interest rate
of 8%.
i. The first loan will mature on June 30, 2021 and the remaining principal balance to
be paid on June 30, 2015 is P1,250,000.
ii. The second loan amounting to P3,000,000 which was incurred on December 31,
2014 is paid at the rate of P500,000 principal balance every June 30 and December 31.

New loans of P3,500,000 will be incurred on December 31, 2021 payable at the rate
of P500,000 every June 30 and December 31. Annual interest rate is expected at 8%.

d. Other noncurrent assets and other current liabilities will remain unchanged.

e. Income tax rate is 30% of the income before taxes. Seventy-five percent of the income
tax expense will be paid in 2021 while the balance will be paid in 2022

f. Cash dividends of P2,000,000 will be paid for 2021.