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Preparation of accounts and - Essay Example

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Since there is a reported economic downturn for the year being projected, and economic prospects remain bleak for the rest of the year, it is anticipated that sales will be affected with the slowdown in the global economic activity. Presumably, consumers will be holding a bit on…
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Preparation of accounts and Essay
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Download file to see previous pages Moreover, the division has attracted a type of consumers that seem to be a niche market, thus creating stable demand for the products
Cost of sales has been assumed to follow a pattern from its previous performance. For the home decorating division, cost of sales was pegged at 70 percent, for the household goods at 60 percent, and for the DIY goods at 40 percent.
Cost of operations for 2010 also followed the historical pattern based on 2009 and 2008 statements, and assumed the same percentage against gross sales of previous years. Given these assumptions, the gross operating income and the income before tax was derived and computed for the year 2010.
Since it was assumed that there was no revaluation occurring in 2010, the net income after tax for Metropole was projected to be at £193,000. This income, compared to that of 2009 and 2008, is quite better than expected, given the bleak global economic outlook.
Since there is an expected economic slowdown, the forecast decreased in sales will leave a bigger inventory of merchandise. Thus compared to 2009, the inventory for 2010 will be higher by about 10 percent. Trade receivables, on the other hand, will suffer a bit since receivables may not be collected on time. As a matter of fact, to push sales and in an effort to curtail inventory from piling up, sales on account are projected to rise giving more trade receivables to account for 2010. Thus, trade receivables account for 2010 ended with 80 percent higher than the previous year 2009.
What will save the day for Metropole during the economic downturn in 2010 will be the highly profitable and stable DIY stores. This division is expected to deliver the cash for the company. Thus, it is also forecast that an increase in cash account is expected, and some of them will be treated as short term savings deposit.
Given the volatile nature of the economy, investments are forecast to be put on hold, as the company observes the direction ...Download file to see next pagesRead More
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