CHAPTER VI
FINANCIAL ASPECT
This chapter covers the investment cost, financial forecast, projected financial
statements, financial analysis, and its financial statement-supporting schedule. This will
determine the viability of the proposed business.
Financial Assumptions
The following are the financial assumptions to be implemented by the
proposed business regarding financial related issues of the entity. These are based on
the data gathered by the researchers from interviews and on the existing standards
practiced by most entities.
Revenue
1. Sales Revenue will increase by 10% annually starting from its second year of
operation.
2. All sales will be on cash basis
3. Product price is assumed to be constant for the next 5 years.
4. The proposed business will be operating at its 80% practical
capacity.
5. Sales is assumed to be VAT inclusive
Expenses
This part of the study states the financial assumption with regards to the calculation of
the expenses of the proposed business.
1. All expenses are on a cash basis other than the depreciation and
amortization expense.
2. All expenses related to government agencies will be assumed constant over
the span of 5 years.
3. supplies will be purchased 1st week of the month to cover transactions for the
whole month and assumption to increase yearly by 3%.
4. The SSS, Phil-Health, and Pag-ibig contributions and remittances will be paid
during the year, except the last month, which will be paid next year.
5. Utilities expense will increase by 3% annually. Utilities incurred in the
production will be treated as overhead cost and be recognized as product cost
except for utilities that should be classified as period cost.
6. The straight-line method of depreciation is used in depreciating the
depreciable assets.
7. Depreciation will be applied to overhead expenses except for depreciation
attributable to period cost.
8. Repairs and maintenance will be 3% of the Asset’s Historical cost and will
increase by 2% each year due to inflation.
9. Advertising expense will be spent during the first year and will not be availed
in the following years of the operation except for Tarpaulin printing.
10. Pre-operating expenses, start-up, pre-opening, training cost, advertising,
and promotional costs are charged to expense, in accordance with PAS38.
11. 13th-month pay will be provided to the employees.
12. Rent Expense will be constant over the span of 5 years.
Taxation
This portion of the study states the financial assumptions that may affect the other
sections of the projected financial statements of the proposed business.
1. The business will be exempted from paying income tax under Tax Reform
Law, RA No. 10963.
2. Employees are assumed to be single and no qualified independents.
3. The business is taxable, and is subjected to Value Added Tax. The rate used
in computing VAT of the business would be 12% on the gross sales.
4. The business will file BIR Form 2551Q - Quarterly Percentage Tax Return
within twenty-five (25) days after the end of each taxable quarter.
5. Income taxes will be paid every first month of the succeeding quarter.
6. The business will withhold 5% withholding tax on gross rentals, as covered
by the expanded withholding tax system.
Initial Capitalization
An investment is an asset acquired with the intention of generating income or
appreciation in value over time. (Defense Acquisition, n.d)
Investment Cost
Leasehold improvement 3,711,786
Equipment 998,843
Furniture and Fixture 136,754
Supplies 50,216
Prepaid Rent 89,286
Security Deposit 44,643
Advertising Expense 23,036
Permits and Licenses 7,591
TOTAL INVESTMENT COST 5,062,155