A company’s income statement is perhaps more important because it shows whether or not the business has achieved or failed to achieve its primary objective-earning a ‘profit’ or ‘net income’
Initially, Paid-up capital of Rose, Aisha, John and David was £2000 for the initial stock purchases in order to start their enterprise commercial activities which were received from Rose, Aisha, John and David as an equal shares of £500 each partner. During the year 2007/08 the following financial transaction occurred.
Although the enterprise has a good return on employed capital which is approximately thee time more than the capital employed, but the same time there is big difference between G.P margin and N.P margin which 33.76% (60.36%-26.60%) it means the enterprise bearing significant expenses as well the enterprise paid a big total of payable tax 1088.83 which is 17.5% of the profit before tax. In order to get the optimum profit margin the enterprise should reduce their expenses.
Each of the partners Rose, Aisha, John and David had contributed and equal amount of share which is £500 of the total paid –up capital with this connection all the profit of the enterprise will be distributed at the same ratio to all the partners as shown below:
The total sales of the enterprise for the first year calculated as £19297.10 but if the enterprise intended to increase its income by 20% from the first year with this intention the enterprise would have to increase its sales by £3859.42 which would reach £23156.52 for the year 2008/09.
Therefore the enterprise would have to increase its purchases by 20% as like for the first year cost of goods sold was £7650 so the enterprise will have to purchase the additional goods by 20% which will increase the expenditure by £1530 and the total cost of goods sold will be amounted to £9180.The whole budgeting scenario for the year ended 2008/09 is illustrated as below.