July 22, 2014

Homework Help: accounting

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

Case 1 (8 marks)

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 year’s 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.

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?

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