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August 21, 2014

August 21, 2014

Posted by **hashan** on Wednesday, January 5, 2011 at 2:48am.

Bona Bonjela works as a bricklayer and earns $45,500 per annum. His wife, Leslie, has a part-time job in which she earns $18,500 per annum. Leslie has been left an inheritance of $300,000 by her aunty. If this money is invested in a bank deposit, it will generate a 6.5% interest per annum. Bona and Leslie, however, are interested in buying a news agency costing $450,000 (including all inventories, equipments, a vehicle, and all transaction costs (i.e. stamp duty, settlement fees, etc)). Their plan is for both to quit their current jobs and run the news agency.

Bona and Leslie have approached a bank, and the bank has granted them a

pre-approval for a business loan of $150,000 at 8.25% per annum, with

interest only payment, repayable over 25 years. The current owner of the

news agency provides sales and expenses information for the previous year,

as follows:

Sales Gross profit

Newspapers and magazines $1,200,000 15%

Stationary 154,000 25%

Books 172,000 15%

Confectionary 12,500 45%

Other sales 24,320 25%

The previous years expenses were as follows:

Shop attendant wages $28,500

Insurance 20,000

Rent of premises 22,000

Security 9,880

Telephone and utility 12,500

Rates 10,500

Advertising 3,980

Vehicle expenses 15,890

Trade subscriptions 3,200

Depreciation expenses 11,000

Bona and Leslie ask for your advice regarding this business decision.

Required:

a. What would be your financial advice to Bona and Leslie? Will they be

better-off financially by buying the news agency? Provide your

calculations to support your advice, and provide also all relevant

financial factors that are related to the situation.

b. What would be your advice to Bona and Leslie regarding other non-

financial factors that they should consider before making a decision?

c. Finally, should Bona and Leslie go ahead with the purchase of the

news agency? What would be your professional advice to them?

- accounting -
**SraJMcGin**, Wednesday, January 5, 2011 at 10:20amTry some of the following accounting tutorials:

http://search.yahoo.com/search?fr=mcafee&p=accounting+tutorials

Sra

- accounting -
**m**, Thursday, January 20, 2011 at 6:52amCase 1.

Bona Bonjela's Salary per year = $45,500

Leslie Bonjela's Salary per year = $18,500

Interest of deposit per year = $23,660

Income = $87,660

a)

Bona and his wife earn $64,000 amount per annum when Bona Bonjela works as a bricklayer and his wife, Leslie works in a part- time job. As well as Leslies inheritance of $300,000 and their salaries also $45,500 and $18,500 invested in a bank deposit, it will generate a 6.5% interest per annum. So simply they earn an interest $23,660 per annum. Then they earn revenue about $87,660 for a year.

If they buy a news agency costing $450,000 there is a gross profit calculation in below.

Sales Gross Profit Amount

Newspaper and Magazines $1,200,000 15% $180,000

Stationary $154,000 25% $38,500

Books $172,000 15% $25,800

Confectionary $12,500 45% $5,625

Other Sales $24,320 25% $6,080

Total $1,562,820 $256,005

There will be sales revenue about $1,562,820 and gross profit of $256,005. Before that Bona and Leslie have approached to bank and they took a business loan of $150,000 at 8.25% per annum. Then there will be an annual interest about $12,375.

Interest for Loan = $150,000 8.25% = $12,375

Bona and Leslie's Business

Income Statement

For the year ended

Sales $ 1,562,820

Cost of sales (1,306,815)

Gross Profit 256,005

Expenses

Shop attendant wages 28,500

Insurance 20,000

Rent 22,000

Security 9,880

Telephone and utility 12,500

Rates 10,500

Advertising 3,980

Vehicle expenses 15,890

Trade subscriptions 3,200

Depreciation expenses 11,000

Loan interest 12,375 (149,825)

Net Profit 106,180

Bona and Leslie both will be getting a net profit about $106,180 from the business. But they can only earn revenue about $87,660 from their current jobs and interest from the bank deposits. So we can assume that they will be better off financially by buying the news agency, because they earn a profit more than their salary and excess interest. It is better off from financially, but when it is come to long term it will be earn losses. Therefore, there will be decrease in demand of newspapers, because most people will be using e-newspapers, e-mails, etc. Then Bona and Leslie will have to add more things to business for earn profits.

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