Business Finance

Quarter 3 – Module 3:
Budget Preparation and
Projected Financial Statements
 What I Need to Know

This module is designed and written to help you understand and prepare the
different types of budgets and projected financial statement.

After accomplishing this module, you are expected to illustrate the formula
and format for the preparation of budgets and projected financial statement
(ABM_BF12-IIIc-d11).
You are also expected to prepare budgets such as projected collection, sales
budget, production budget, income projected statement of comprehensive
income, projected of financial position, and projected cash flow statement.

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 What I Know

Directions: Write True if the statement is correct and False if the statement is
incorrect. Write your answers on a separate sheet of paper.

______1. The projected statement of financial positions has to be balanced so

External Funds Needed (EFN) can be computed.
______2. If the company needs funds for the operation of the business, they can
only use debt instruments.
______3. If amount in EFN is positive, it means that the company has
excess cash.
______4. If amount EFN is negative, it means that the company needs
additional funds.
______5. If the company has excess cash, it means that it can pay its
financial obligations.
______6. Net cash flow gives information about the amount of excess cash or
cash deficit for the period.
______7. Cash receipts include payments to suppliers and other service
providers, loans, and cash dividends.
______8. A budget is an estimate of costs, revenues, and resources over a
specified period, reflecting a reading of future financial conditions
and goals.
______9. In forecasting financial statements, sales are the most important
account because almost all of the accounts in the financial statements
are affected by it.
______10. The cash disbursement is the collections from receivables, proceeds
from loans, issuance of new shares of stocks, and advances from
the stockholders.
______11. Sales is the most important account in forecasting financing statement.
______12. There should be information on income taxes and how much financing
cost a company will have to forecast net income.
______13. The cash budget displays the expected cash receipts and
disbursements for an accounting period.
______14. Sales budget is composed of the variable and fixed costs needed to run
the operations of the business.
______15. Operating budget provides estimated amount of money based on the
volume of products that a company proposes to sell in a future period.

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 Lesson Budget Preparation and
1 Projected Financial
Statements
Budgeting

A budget is an estimate of costs, revenues, and resources over a specified

period, reflecting a reading of future financial conditions and goals. Sales budget,
production budget, operating budget and cash budget are the budgets that need
to be prepared.

Sales Budget
• It provides the estimated amount of money based on the volume of products
that a company proposes to sell in the future.
• In forecasting the financial statements, the most important statement
account is sales because almost all of the accounts in the financial
statements are affected by it. Cost of sales and gross profit are examples of
accounts that are affected by sales.
• Sales Revenue=Units to be sold x Unit Selling Price
• The finance manager must consider the internal and external factors in
preparing sales budget.

External Factors Internal Factors

• Gross Domestic Product • pricing
(GDP) growth rate • promotional activities
• income tax rates • distribution
• inflation • production capacity
• interest rate • management styles
• foreign exchange rate • financial
• developments in the capability/resources of the
industry company
• competition • reputation
• economic crisis
• regulatory environment
• political crisis
Table 1. Factors that Influence Sales

These external factors like interest rates, GDP, income tax rate, and inflation should
be considered to forecast sales. They can affect the sales of the company. Even a
crisis should be considered as the effect of Covid-19. Many companies closed down
and many people lost their jobs. As a result, the company's sales can be affected
because the purchasing power of the people decreases since they lost their job.

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Internal factors should also be considered in preparing the sales budget. You cannot
produce thousands of units if you only have 3 production staff.

Example: The required production of ABC Corporation in the first quarter is

200,000 units. The units increased by 10% per quarter. The selling price per unit is
Php 5.00.

ABC Corporation
Sales Budget
For the Year Ending December 31, 2020
QUARTER
1 2 3 4 Year
Units to be sold 200,000 220,000 240,000 260,000 920,000
Unit Selling Price (Php) 5 5 5 5 5
Sales Revenue (Php) 1,000,000.00 1,100,000.00 1,200,000.00 1,300,000.00 4,600,000.00

Table 1. ABC Corporation Sales Budget

Production Budget
• It provides information with respect to the number of units that should be
produced over a given accounting period based on expected sales and
targeted level of ending inventories.
• Required Production in Units=Expected Sales + Target Ending Inventories-
Beginning Inventories
Example:
Determine the units to be produced by ABC Corporation in 2020.
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Projected Units 200,000 220,000 240,000 260,000
Target Level Ending Inventories 22,000 24,000 26,000 28,000
The beginning inventory is 20,000 units.

ABC Corporation
Production Budget (In Units)
For the Year Ending December 31, 2020

QUARTER
1 2 3 4 Year
Projected Sales 200,000 220,000 240,000 260,000 920,000
Add:Target Level of Ending Inventories 22,000 24,000 26,000 28,000 28,000
Total 222,000 244,000 266,000 288,000 948,000
Less: Beginning Inventories 20,000 22,000 24,000 26,000 20,000
Required Production 202,000 222,000 242,000 262,000 928,000

Table 2. ABC Corporation Production Budget

In order to get the production units, add the target level of ending inventories
and then less the beginning inventories.

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 Note that the ending inventory of the first quarter (22,000) is the beginning
inventory in the second quarter. The same can be seen in the quarters that follow.
However, the ending inventory for the year is the same as the fourth quarter and the
beginning inventory for the year is the same as that of the first quarter.

Operating Budget
• It is made to estimate how much their revenue and expenses would be within
a year. It is composed of the variable and fixed costs needed to run the
operations of the business like wages and salaries of personnel, tax payments,
interest payments, and rent payments.

Cash Budget
• It displays the expected cash receipts and disbursements for an accounting
period. It is prepared on a monthly or quarterly basis for a year.
• The cash budget is divided into three parts: cash receipts, cash
disbursements, excess cash balance, or required total financing.

Parts of the cash budget are as follows:

1. Cash receipts- These compose of collections from receivables, proceeds from
loans, issuance of new shares of stocks, and advances from the stockholders.
2. Cash disbursements- These include payments to suppliers and other service
providers, loans, and cash dividends.
3. Excess cash balance or required total financing- This part of the cash
budget shows possible funding requirements. If the company has excess cash,
it is a good indicator that it can pay an existing loan or put it in an investment.
If there is no excess cash, the company must make a plan where to get funds.

Example: The president of ABC Corporation wants to find out if the company has
enough cash to pay the company’s loan worth Php 300,000.00 by the end
of 2020.

a. The projected quarterly sales for the year 2020 are as follows:
Quarter 1 Quarter 2 Quarter 3 Quarter 4
1,010,000 1,110,000 1,210,000 1,310,000

The fourth quarter sales in 2019 were Php 900,000.00. Eighty-five percent
(85%) of the sales are collected in the Quarter 1 of the sales. The remaining fifteen
percent (15%) is collected in the following quarter.

b. Assume that the operating expenses for each quarter are as follows:
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Php 101,000.00 Php 111,000.00 Php 121,000.00 Php 131,000.00

c. Cost of sales is 75% of sales.

d. Interest expenses paid every quarter is Php 15,000.00.
e. Income tax rate is 30%.

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 These are the income taxes to be paid every quarter.
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Php 30,000.00 Php 45,000.00 Php 50,000.00 Php 55,000.00

f. Expected cash balance at the end of 2019 is about Php 40,000.00. For 2020,
target cash is raised to Php 100,000.00 because of expected increase in sales.

ABC Corporation Cash Budget

For the Year Ending December 2020

Q1 Q2 Q3 Q4
Cash Receipts Php 993,500.00 Php 1,095,000.00 Php 1,195,000.00 Php 1,295,000.00
Less: Cash Disbursements 903,500.00 1,003,500.00 1,093,500.00 1,483,500.00
Net Cash Flow 90,000.00 91,500.00 101,500.00 - 188,500. 00
Add: Beginning Cash 40,000.00 130,000.00 221,500.00 323,000.00
Ending Cash Balance 130,000 221,500.00 323,000.00 134,500.00
Less: Minimum Cash Balance 100,000.00 100,000.00 100,000.00 - 100,000.00
Excess Cash Balance Php 30,000.00 Php 121,500.00 Php 223,000.00 Php 34,500.00
Table 3. ABC Corporation Cash Budget

To compute for the cash budget, follow these steps:

1. Compute for the cash receipts. Identify how much will be collected from
the sales.
a. Multiply the projected sales per quarter by the percentages of
sales collection.
b. Multiply the projected sales per quarter by the remaining percentages of
sales collection. Use the last quarter sales of last year for the first
quarter. Then use Quarter 1 to Quarter 3 sales for year 2020.
c. Add the Quarter of Sale and the Quarter after Sale.

Q1 Q2 Q3 Q4
Quarter of Sale Php 1,010,000.00 Php 1,110,000.00 Php 1,210,000.00 Php 1,310,000.00
x 85% x 85% x 85% x 85%
Php 858,500.00 Php 943,500.00 Php 1,028,500 Php 1,113,500.00

Quarter after Php 900,000.00 Php 1,110,000.00 Php 1,210,000.00 Php 1,310,000.00
Sale x 15% x 15% x 15% x 15%
Php 135,000.00 Php 151,500.00 Php 166,500 Php 181,500.00
Cash Receipts Php 993,500.00 Php 1,095,000.00 Php 1, 195,000.00 Php 1, 295,000.00
Table 4. Computation of Cash Receipts

2. Compute for the cash disbursements. Identify all the payments to be made
and add all expenses.
Q1 Q2 Q3 Q4
Cost of Sales Php 1,010,000.00 Php 1,110,000.00 Php 1,210,000.00 Php 1,310,000.00
x 75% x 75% x 75% x 75%
757,500 832,500.00 907,500,00 982,500.00
Cash Operating Expense 101,000.00 111,000.00 121,000 131,000
Income Taxes 30,000.00 45,000.00 50,000.00 55,000.00
Interest Expense 15,000.00 15,000.00 15,000.00 15,000.00
Loan 300,000.00
Cash Disbursements Php 903, 500.00 Php 1,003,500.00 Php 1,093,500.00 Php 1,483,500

Table 5. Computation of Cash Disbursement

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 3. Subtract the cash disbursement from the cash receipts to get the net
cash flow.

4. Add the beginning cash balance and then subtract the minimum cash
balance. If the minimum cash balance is less than the ending cash balance,
the firm has excess cash. If the minimum cash balance is greater than the
ending cash balance, the firm requires financing.

What’s In

Directions: Before we continue our lessons, let us have a review by having these
exercises. Write the answers on the separate sheet of paper.
1. Prepare the production budget of Emir’s Corporation for 2021. Given below
are the pieces of information needed to prepare a production budget.
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Projected Units 400,000 450,000 500,000 600,000
Target Level Ending Inventories 30,000 33,000 35,000 40,000
The beginning inventory is 32,000 units.
2. The president of Emir’s Corporation wanted to find out if the company has
enough cash to pay the company’s loan worth Php 600,000.00 by the end
of 2020.
a. The projected quarterly sales for the year 2020 are as follows:
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Php 1,200,000.00 Php 1,400,000.00 Php 1,600,000.00 Php 1,800,000.00
The fourth quarter sales in 2019 was Php 1,000,000.00. Ninety percent (90%)
of the sales were collected in the quarter they were made. The remaining ten percent
(10%) was collected in the following quarter.
b. Assume that the operating expenses for each quarter are as follows:
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Php 125,000.00 Php 150,000.00 Php 175,000.00 Php 200,000.00
c. Cost of sales is 75% of sales.
d. Interest expenses paid every quarter is Php 18,000.00.
e. Income tax rate is 30%. The income taxes to be paid every quarter will be:
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Php 35,000.00 Php 45,000.00 Php 55,000.00 Php 65,000.00
f. Expected cash balance at the end of 2020 is about Php 80,000.00. For 2021, target
cash is raised to Php 150,000.00 because of expected increase in sales.

Prepare the 2021 cash budget of Emir’s Corporation. Find out if they have
enough cash to pay the Php 600,000.00 loan in the last quarter.

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 What’s New

Projected Financial Statement

The projected financial statement is important in planning to forecast the
outcome of the organization in future periods, assess the standing of the business,
and budget preparation. It will help in evaluating the additional assets/funds needed
in the business. It will also serve as a basis for the business if it can pay its financial
obligations.

The following are the steps to be followed in projecting financial statements:

Forecast the Statement of Comprehensive Income (Income Statement).

• Forecast sales.
• Forecast cost of sales and operating expenses.
To get the cost of sales, use the average cost of sales over the
historical data analyzed.
Find out which are variable expenses and fixed expenses.
• Forecast net income and retained earnings.
(There should be information on income taxes and how much
financing cost a company will have to forecast net income.)

Forecast the Statement of Financial Position and Statement of

Cash Flows.
• Determine SFP accounts that will be affected or associated with
sales. (Cash, AR, inventories, AP, and accrued expenses payable)
• Determine the external funds needed. The projected statement
of financial position has to be balanced so EFN is computed.
EFN=Change in Total Assets-(Change in Total Liabilities
+ Total Change in Stockholder’s Equity)
+ EFN, means that the company needs more funds
- EFN, means that the company has excess cash.
Find out how to finance EFN.
• After computing the EFN, the management must determine how
to finance the company. They can raise the funds through debt
(borrowing from the bank as notes payable) or equity (through
stocks and bonds) or it can be the combination of
the instruments.

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 What Is It

To further understand the lesson, let us have an example.

Example: The president of ABCD Company asked the finance manager to

prepare the projected financial statements of the company. The accounts needed are
shown below.
ABCD Company
Projected Statement of Comprehensive Income
For the Year Ending December 31, 2019

Net Sales Php 54,705,675.00

Cost of Sales 41,954,730.00
Gross Profit 12,750,945.00
Operating Expenses 8,958,213.00
Operating Income 3,792,732.00
Interest Expense 250,000.00
Income before Taxes 3,542,732.00
Taxes 1,062,820.00
Net Income Php 2,479,912.00

Financial Accounts in 2019 Amount

Cash Php 2,000,000.00
Receivables 2,800,500.00
Inventories 5,140,213.00
Other Current Assets 1,500,000.00
PPE 12,400,000.00
Other Noncurrent Assets 900,500.00
Trades Payable 5,550,000.00
Current portion of Long-term Debt 2,000,000.00
Long-term debt, Net of Current 2,000,000.00
P i
Retained Earnings 5,043,216.00
Other Current Liabilities 90,000.00
Capital Stock 9,000,000.00
Total Assets 23,840,713.00
Total Liabilities 10,519,207.00
Total Stockholder’ Equity Php 13,321,506.00

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a. Sales are expected to increase by 10% in 2020 from the 2019 sales level.
The sales of the company increased by 10% annually from 2015 to 2019.
b. The cost of sales, cash, receivables, inventories, other current assets, and
trade payable are expected to change with sales based on the financial
statements in 2019. The variable operating expense is 8% of sales. The
depreciation expense is 10% of the gross beginning balance of property,
plant, and equipment. The gross balance of PPE was
Php 30,000,000.00 (December 31, 2019). The new PPE for 2020 is
Php 6,000,000.00. The PPE acquired in the first half of the year will
depreciate for one full year.
c. There are two-long term loans as of December 31, 2019. Both have an
annual interest rate of 10%. The first loan will mature on June 30, 2020.
Thus, the loan amounting to Php 1,250,000.00 has to be paid on or before
June 30, 2020. The second loan amounting to Php 3,000,000.00 which was
incurred on December 31, 2019, is paid at the rate of Php 500,000.00
principal balance every June 30 and December 31. New loans of
Php 3,000,000.00 will be incurred on December 31, 2020, payable at the
rate of Php 500,000.00 every June 30 and December 31. Annual interest
rate is expected at 10%.
d. The income tax rate is 30%. 75% of the income tax payable will be paid in
2020 while the balance will be paid in 2021.
e. Other noncurrent assets and other current liabilities will
remain unchanged.
f. Cash dividends of Php 2,000,000.00 will be paid in 2020.
g. Assume that the current portion of long-term debt amounts to
Php 2,000,000.00 and the net of long-term debt amounts to
Php 3,500,000.00 for the year 2020.

Solution:
ABCD Company
Projected Statement of Comprehensive Income
For the Year Ending December 31, 2020

Net Sales Php 60,176,243.00

Cost of Sales 46,150,203.00
Gross Profit 14,026,040.00
Operating Expenses 8,414,099.00
Operating Income 5,611,941.00
Interest Expense 168,750.00
Income before Taxes 5,443,191.00
Taxes 1,632,957.00
Net Income Php 3,810,234.00

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Computation:
Projected Net Sales in 2020
= Net Sales in 2019 x (1+Expected increase in Sales Percentage)
= Php 54,705, 675 x 1.10
= Php 60,176,243.00

Projected Cost of Sales in 2020

Cost of Sales in 2019
=� � x Net Sales in 2020
Net Sales in 2019
Php 41,954,730.00
=� � x Php 60, 176, 243.00
Php 54,705,675.00
= Php 46,150,203.00

Operating Expenses in 2020

Variable ( % * NS 2020) Php 4,814,099.00
Add: Fixed (Php 30,000,000.00 + Php 6,000,000.00) x .10
(Depreciation Expense) =Php 3,600,000.00
Total Operating Expenses Php 8,414,099.00

Interest Expense
First Loan Php 1,250,000.00 10% (6/12) 31, 250
Second Loan Php 3,000,000.00 10% (6/12) 75, 000
New Loan Php 2,500,000.00 10% (6/12) 62, 500
Php 168,750.00

The annual interest is 10% but the company pays every

six months. Multiply it with 6/12. twice every year.
Yearly x1
Quarterly (every 3 months) x 3/12
Monthly x 1/12

Taxes
= Income Before Tax in 2020 x 30%
= Php 5,443,191 x 30%
= Php 1,623,597.00

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 ABCD Company
Projected Statement of Financial Position
For the Year Ending December 31, 2020

Assets
Current Assets
Cash Php 2,200,000.00
Receivables 3,080,000.00
Inventories 5,654,234.00
Other Current Assets 1,650,000.00
Total Current Assets 12,584,234.00
Noncurrent Assets
Property, Plant, and Equipment, Net 14,800,000.00
Other Noncurrent Assets 900,500.00
Total Noncurrent Assets 15,700,500.00
Total Assets Php 28,284,734.00
Liabilities and Equity
Current Liabilities
Notes Payable (External Funds Needed) -3,346,709.00
Trade Payables 6,105,000.00
Income Taxes Payable 4,082,993.00
Current Portion of Long-term Debt 2,000,000.00
Other Current Liabilities 90,000.00
Total Current Liabilities 8,931,284.00
Noncurrent Liabilities
Long-term Debt, Net of Current 3,500,000.00
Total liabilities 12,431,284.00
Stockholders’ Equity
Capital Stock 9,000,000.00
Retained Earnings 6,853,450.00
Total Stockholders’ Equity 15,853,450.00
Total Liabilities and Stockholders’ Equity Php 28,284,734.00

Computation:
Projected Cash in 2020
Cash in 2019
=� � x Net Sales in 2020
Net Sales in 2019
Php 2,000,000.00
=� � x Php 60, 176, 243.00
Php 54,705,675.00
= Php 2,200,000.00

Projected Accounts Receivable in 2020

Accounts Receivable in 2019
=� � x Net Sales in 2020
Net Sales in 2019
Php 2,800,000
=� � x Php 60,176,243
Php 54,705,675
= Php 3,080,000.00

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Projected Inventories in 2020
Inventories in 2019
=� � x Net Sales in 2020
Net Sales in 2019
Php 5,140,213.00
=� � x Php 60,176,243.00
Php 54,705,675.00
= Php 5,654,234.00

Projected Other Current Assets in 2020

Inventories in 2019
=� � x Net Sales in 2020
Net Sales in 2019
Php 1,500,000.00
=� � x Php 60,176,243.00
Php 54,705,675.00
= Php 1,650,000.00

Projected Trades Payable in 2020

Inventories in 2019
=� � x Net Sales in 2020
Net Sales in 2019
Php 5,550,000.00
=� � x Php 60,176,243.00
Php 54,705,675.00
= Php 6,105,000.00

Property Plant and Equipment

= (PPE in 2019 + new PPE acquisition in 2020)- [(gross balance in 2020
+ new PPE acquisition in 2020) x Percentage Depreciation Expense in 2020
= (Php 12,400,000.00 + Php 6,000,000.00) – [(Php 30,000,000+6,000,000.00)]
x .10
= Php 18,400,000.00 –Php 3,600,000.00
= Php 14,800,000.00

Projected Income Tax Payable 2020 x 75%

= Php 5,443,191.00 x .75
= Php 4,082,993.00

Projected Retained Earnings in 2020

= (Retained Earnings 2019+Net Income 2020)- Cash Dividends
= (Php 5,043,216.00 + Php 3,810,234.00) – Php 2,000,000.00
= Php 6,853,450.00

Current Portion of Long-term Debt and Long-term Debt

Loan Current Portion Long-term Total
Php 3,000,000.00 Php 1,000,000.00 Php 1,000,000.00 2,000.000.00
Php 3,500,000.00 Php 1,000,000.00 Php 2,500,000.00 3,500,000.00
Total Php 2,000,000.00 Php 3,500,000.00 5, 500,000.00

EFN
= Change in Total Assets - (Change in Total Liabilities + Total Change in
Stockholder’s Equity)
= Php 4, 444, 021.00 – (Php 5,258,786.00+ Php 2,531,944.00)
= Php 4, 444, 021.00 – Php 7,790,730.00
= - Php 3,345,709.00

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 2020 2019 Change
Total Assets Php 28,284,734.00 Php 23,840,713.00 Php 4,444,021.00
Total Lia Php 15777993.00 Php 10,519,207.00 Php 5,258,786.00
Total S.E. Php 15853450.00 Php 13,321,506.00 Php 2,531,944.00

ABCD Corporation
Projected Statement of Cash Flow
For the Year Ending December 31, 2020

Cash Flows from Operating Activities

Income before Taxes Php 5,443,191.00
Adjustments:
Depreciation 3,600,000.00
Changes in the following accounts:
Decrease (increase) in Accounts Receivable - 279,500.00
Decrease (increase) in Inventories - 514,021.00
Decrease (increase) in Other Current Assets - 150,000.00
Increase (decrease) in Accounts Payable - 555,000.00
Increase (decrease) in Other Current Liabilities -
Cash Flows from Operating Activities 7,544,670.00

Cash Flows from Investing Activities

Acquisition of Property, Plant and Equipment - 6,000,000.00
Acquisition of Other Noncurrent Assets
Cash Flows from Investing Activities - 6,000,000.00

Cash Flows from Financing Activities

Payment of Cash Dividends - 2,000,000.00
Short-term Notes Payable (EFN) -
Loans, Net Payment 1,500,000.00
Cash Flows from Financing Activities - 500,000.00
Net Change in Cash 1,044,670.00
Cash, Beginning 2,000,000.00
Cash, Ending Php 3,044,670.00

Formula:
Changes in Accounts = Accounts in 2019 – Accounts in 2020

Example:

Changes in Accounts Receivable =

Accounts Receivable in 2019 – Accounts Receivable in 2020

= Php 2,800,500.00 – Php 3,080, 000.00
= Php 588,000.00

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 What’s More

Directions: Read and analyze the situation. Write your answers on a separate sheet
of paper.

The statement of financial position and statement of comprehensive income

for the year ending December 31, 2019 are shown below. Find out if the company
will have excess cash or need additional funds. Prepare the projected financial
statements (Projected Statement of Financial Position, Projected Statement of
Comprehensive Income and Projected Statement of Cash Flows).

Elijah's Corporation
Statement of Financial Position
For the Year Ending December 31, 2019

Assets
Current Assets
Cash Php 2,400,000.00
Receivables 3,100,000.00
Inventories 6,000,000.00
Other Current Assets 1,600,000.00
Total Current Assets 13,100,000.00
Non-current assets
Property, Plant, and Equipment, Net 15,500,000.00
Other Noncurrent Assets 1,500,000.00
Total Noncurrent Assets 17,000,000.00
Total Assets Php 30,100,000.00
Liabilities and Equity
Current Liabilities
Trade Payables 6,500,000.00
Income Taxes Payable 4,500,000.00
Current Portion f Long-term Debt 2,000,000.00
Other Current Liabilities 100,000.00
Total Current Liabilities 13,100,000.00
Noncurrent Liabilities
Long-Term Debt, Net of Current 3,500,000.00
Total Liabilities 16,600,000.00
Stockholders’ Equity
Capital Stock 6,000,000.00
Retained Earnings 7,500,000.00
Total Stockholders’ Equity 13,500,000.00
Total Liabilities and Stockholders’ Equity Php 30,100,000.00

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 Elijah's Corporation
Statement of Comprehensive Income
For the Year Ending December 31, 2019

Net Sales Php 50,000,000.00

Cost of Sales 38,000,000.00
Gross Profit 12,000,000.00
Operating Expenses 7,500,000.00
Operating Income 4,500,000.00
Interest Expense 250,000.00
Income before Taxes 4,250,000.00
Taxes 1,275,000.00
Net Income Php 2,975,000.00

a. Sales are expected to increase by 10% in 2020 from the 2019 sales
level. The sales of the company increased by 10% annually from 2015
to 2019.
b. The cost of sales, cash, receivable, inventories, other current assets,
and trade payable are expected to change with sales based on the
financial statements in 2019. The variable operating expenses is 9% of
sales. The depreciation expense is 10% of the gross beginning balance
of property, plant, and equipment. The gross balance of PPE was
Php 32,000,000.00 (December 31, 2019). The new PPE for 2020 is
Php 5,000,000.00. The PPE acquired in the first half of the year will
depreciate for one full year.
c. There are two-long term loans as of December 31, 2019. Both have an
annual interest rate of 10%. The first loan will mature on June 30,
2020. Thus, the loan amounting to Php 1,250,000.00 has to be paid
on or before June 30, 2020. The second loan amounting to
Php 3,000,000.00 which was incurred on December 31, 2019 is paid
at the rate of Php 1,000,000.00 principal balance every December 31.
New loans of Php 3,000,000 will be incurred on December 31, 2020
payable at the rate of Php 1,000,000.00 every December 31. Annual
interest rate is expected at 8%
d. The income tax rate is 30%. Seventy-five percent (75%) of the income
tax payable will be paid in 2020 while the balance will be paid in 2021.
e. Other noncurrent assets and other current liabilities will
remain unchanged.
f. Cash dividends of Php 3,000,000.00 will be paid in 2020.

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 What I Have Learned

Directions: Answer the following questions in one (1) to two (2) sentences. Write your
answers on a separate sheet of paper.

In this lesson,

I learned that:

____________________________________________________________________________
____________________________________________________________________________

I did that:

____________________________________________________________________________
____________________________________________________________________________

I realized that:

____________________________________________________________________________
____________________________________________________________________________

Scoring Rubrics:

5 points The answer is well-written, organized and the idea is very relevant to
the question and has no grammatical or spelling errors.
4 points The answer is fairly written, and the idea is almost relevant to the
question and has one grammatical or spelling error.
3 points The answer is somewhat relevant to the questions and has two to
three grammatical or spelling errors.
2 points The answer is unclear and has four grammatical or
spelling errors.
1 point The answer does not address the question and has more than five
grammatical or spelling errors.

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 What I Can Do

Directions: Answer the question below in three (3) to five (5) sentences. Write your
answers on a separate sheet of paper.

If you were the owner of the company, what would you do if the actual
performance of the company did not meet the plans that have been made?

____________________________________________________________________________
____________________________________________________________________________

Scoring Rubrics:

5 points The answer is well-written, organized and the idea is very relevant to
the question and has no grammatical or spelling errors.
4 points The answer is fairly written, and the idea is almost relevant to the
question and has one grammatical or spelling error.
3 points The answer is somewhat relevant to the questions and has two to
three grammatical or spelling errors.
2 points The answer is unclear and has four grammatical or
spelling errors.
1 point The answer does not address the question and has more than five
grammatical or spelling errors.

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 Assessment

Directions: Match Column A with Column B. Write your answers on a separate sheet
of paper.
COLUMN A COLUMN B
____1. These include payments to suppliers and A. Sales revenue
other service providers, loans, and cash B. Cash budget
dividends. C. + EFN
____2. It provides the estimated amount of money
D. Sales budget
based on the volume of products that a
company proposes to sell in a E. Cash receipts
future period. F. Operating budget
____3. It is composed of collections from G. Cash disbursement
receivables, proceeds from loans, issuance H. Target cash balance
of new shares of stocks, and advances I. Net cash flow
from the stockholders. J. – EFN
____4. It is the amount of cash that the firm needs K. Budget
to maintain at all times at its present level L. Production budget
of operations, cash flows stability, and the M. Required production
political and macro-economic conditions.
____5. It means that the company has
excess cash.
____6. It means that the company needs
additional funds.
____7. It displays the expected cash receipts and
disbursements for an accounting period.
____8. It is composed of the variable and fixed
costs needed to run the operations of
the business.
____9. It provides information about the number
of units that should be produced over a
given accounting period based on expected
sales and targeted level of
ending inventories.
____10. It is the formula used by adding expected
sales and target ending inventories and
then deducted to the
beginning inventories.
____11. It is the formula used by multiplying the
number of units sold by the unit
selling price.
____12. It is an estimate of costs, revenues, and
resources over a specified period, reflecting
a reading of future financial conditions
and goals.

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II. Directions: Listed below are the steps in projecting financial statements. Arrange
them in order. Write your answers on a separate sheet of paper.

______ 13. Forecast the statement of financial position and cash flows.
______ 14. Find out how to finance the external funds needed.
______ 15. Forecast the statement of comprehensive income.

Additional Activities

Directions: Analyze the information given and do what is required. Write your
answers on a separate sheet of paper.

Given below is the information to prepare the budgets needed by the

president of Matiyaga Company.

Quarter 1 Quarter 2 Quarter 3 Quarter 4

Projected units 750, 000 825, 000 850, 000 900, 000
Target level ending inventories 50, 000 55, 000 60, 000 65, 000

The unit selling price is Php 25.00.

The beginning inventory is 32,000 units.

Requirements: Prepare the Sales and Production Budget for Matiyaga Company for
the year 2020.

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