Chapter V

Financial Aspect

Financial aspects consider various areas such as start-up capital, expenses, revenues,

and financial statements necessary in assessing the financial feasibility of the study.

Financial Statements

Financial statements are the means by which the information accumulated and

processed in financial accounting is periodically communicated to the users. These actually are

the end-products of the accounting cycle.

Income Statement

The income statement is a statement showing the performance of the company for a

given period of time. It summarizes the revenues earned and the expenses incurred for that

period of time. Information about the performance of a company, in particular its profitability, is

required in order to asses potential changes in the economic resources that it is likely to control

in the future. It is also useful in predicting the capacity of the company to generate cash flows

from its existing resource base.

Statement of Changes in Equity

This statement summarizes the changes that occurred in owner’s or partner’s equity.

Changes in the company’s equity between two balance sheet dates reflect the increase or

decrease in its assets during the period.

Statement of Financial Position

The statement of financial position is a statement that shows the financial position or

condition of an entity by listing the assets, liabilities and owner’s equity as at a specific date. The

information needed for this statement is the net balances at the end of the period, rather than

the total for the period as in the income statement.

Statement of Cash Flows

Tis statement provides information about the cash receipts and cash payments of an

entity during a period. It is a formal statement that classifies cash receipts and cash payments

into operating, investing and financial activities. It shows the net increase or decrease in cash

during the period and the cash balance at the end of the period. It also helps project the future

net cash flows of the entity. (Source: Basic Accounting, Win Ballada, 2010)

Major Financial Assumptions

1. Supplies and Raw Materials are expected to increase by 3.74% because of the inflation

computed as follows:

Year Inflation Rate

2010 3.8

2011 4.6

2012 3.2

2013 3.0

2014 4.1

(Source: http://psa.gov.ph/content/summary-inflation-report-consumer-price-index-2006100-

dec-2014)

2. The business will be cash basis.

3. Sales in units will increase by 5.7% every year, based on the growth rate of the

projected supply. (Source: National Accounts of the Philippines, NCSB)

4. Depreciable assets will be depreciated using the straight line method.

5. There will be no work in process inventory at the end of each year.

6. There will be no ending inventory for finished goods.

7. The firm is a VAT registered business.

8. An accrual for income taxes shall be considered in the financial statements.

9. Salaries of employees will increase by 3.74% annually.

10. Rent Expense will be allocated 100% for factory only.

11. Utilities Expense will be allocated 100% for factory only.

12. Repairs and Maintenance is expected to increase by 3.74% per year.

13. Promotion and Marketing Expenses will increase by 3.74% each year.

14. The mark up for the product will be 20% of the production cost per unit.

15. Amortization of the Leasehold Improvements will be allocated 100% for factory only.

16. Expenses are assumed to be paid the following month.

17. Employee Benefits Expense is for all the employees.