The following financial statements relate to Z Limited for the year ended 31 December 2024:
Z Limited
Statement of profit or loss for the year ended 31 December 2024 |
| Sh."000" |
| Revenue (Sales of goods) | 4,500.00 |
| Cost of Sales: | |
| Opening inventory | 600.00 |
| Purchases | 3,260.00 |
| 3,860.00 |
| Closing inventory | (660.00) |
| Cost of goods sold (Cost of sales) | (3,200.00) |
| Gross profit | 1,300.00 |
| Other expenses: | |
| Administrative expenses | (210.00) |
| Distribution expenses | (210.00) |
| Earnings Before Interest, Tax, Depreciation and Amortisation | 880.00 |
| Depreciation and amortisation | (150.00) |
| Earnings Before Interest and Tax | 730.00 |
| Interest expense | (140.00) |
| Earnings Before Tax | 590.00 |
| Income Tax Expense | (160.00) |
| Earnings After Tax (Net Income) | 430.00 |
| Dividends paid | (180.00) |
| Retained profit for the period | 250.00 |
| Retained profit b/f | 550.00 |
| Retained profit c/f | 800.00 |
Z Limited
Statement of financial position as at 31 December 2024 |
| Assets: | Sh."000" |
| Non-current assets | 2,440.00 |
| Current assets: | |
| Inventory | 660.00 |
| Trade receivables | 970.00 |
| Cash at bank and in hand | 140.00 |
| Total current assets | 1,770.00 |
| Total assets | 4,210.00 |
| Capital: | |
| Ordinary share capital | 850.00 |
| Share premium | 330.00 |
| Retained profits | 800.00 |
| Total capital | 1,980.00 |
| Liabilities: | |
| Non-curret liabilities: | |
| Long-term bank loans | 1,300.00 |
| Current liabilities: | |
| Trade payables | 810.00 |
| Tax payable | 120.00 |
| 930.00 |
| Total liabilities | 2,230.00 |
| Total capital and liabilities | 4,210.00 |
You are required to prepare the forecast financial statements for the next five years commencing 2025, given the following assumptions:
For the statement of profit or loss assume:
1. Revenue and purchases are expected to grow at the rate of 10% per annum.
2. Gross profit is 30% of revenue. (This will make it easier to determine closing inventory)
3. Administration expenses will grow at the rate of 5% per annum.
4. Selling and distribution expenses will likely grow at the rate of 10% per annum in line with revenue.
5. Depreciation and amortisation is on average 10% of previous period non-current assets.
6. Interest expense is 10% of end of last period balance of the long term loans.
7. Income tax expense is 30% of the profit before tax.
8. Dividends is given as 40% of profit after tax.
For the statement of financial position assume:
1. Non-current assets are expected to grow at the rate of 5% annually.
2. Inventory is determined from the profit or loss.
3. Trade receivables will be 2 months of credit sales.
4. Cash at bank are expected to grow at Sh.50,000 per year.
5. Share capital and share premium will remain constant over the period.
6. The longterm bank loan will be the balancing figure in the statement of financial position.
7. Trade payables are 2 months of purchases.
8. Tax payable is 60% of the tax expense.
9. Share price is expected to grow at the rate of 5% per annum.
Required:
(a) The forecast statement of profit or loss for the five years from 2025 to 2029.
(b) The statement of financial position for the five years from 2025 to 2029.
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