Projected income statement Grade 11 PART 1

Summary

This video script offers a detailed tutorial on creating a projected income statement for a business. It emphasizes the importance of using the previous year's income statement and balance sheet to estimate monthly figures. The script guides viewers through adjusting for changes in sales, rental charges, interest on fixed deposits, and other variable expenses, ensuring a realistic financial forecast for the upcoming months.

Takeaways

• 📈 A projected income statement is a financial tool used for estimating a business's income and expenses for a future period.
• 🔍 To prepare a projected income statement, a business needs its previous year's income statement and balance sheet.
• ⏱ The script explains the process of dividing the previous year's income statement amounts by 12 to estimate monthly figures.
• 📚 The video on the YouTube channel provides further explanation on what a projected income statement is.
• 💡 The example given involves projecting income for July, August, and September 2021 using the income statement from the year ended 30 June 2021.
• 📉 Sales for July and August are expected to remain constant at 80,000 per month, with a 10% increase in September, resulting in 88,000 for that month.
• 💰 The markup percentage is calculated by dividing gross profit by cost of sales and then multiplying by 100. In the example, it's 100%.
• 🏠 A monthly rental charge is expected to increase by 10% in August, affecting the operating incomes.
• 🏦 The firm has a mortgage with an interest rate of 15% per annum, with a portion of the principal repayable on the 1st of August, which affects the interest expense.
• 📊 Depreciation is calculated monthly and is expected to remain fixed for July and August, with an increase in September due to new equipment purchase.
• 📈 Other operating expenses such as advertising, rates, water, and electricity are expected to increase by 10% in August, except for all other expenses which are expected to increase by 20% in September.

Q & A

What is a projected income statement?

A projected income statement is a financial statement that estimates a company's future revenues and expenses, helping to predict the company's profitability over a certain period.

Why is the previous year's income statement needed to prepare a projected income statement?

The previous year's income statement is needed to understand the historical financial performance of the company, which serves as a baseline for estimating future income and expenses.

What is the purpose of dividing the amounts from the previous year's income statement by 12 when preparing a projected income statement?

Dividing the amounts by 12 converts the annual figures into monthly figures, which is necessary for projecting the income and expenses on a monthly basis.

According to the transcript, how is the sales amount per month calculated?

The sales amount per month is calculated by dividing the total annual sales by 12.

What is the expected change in sales for September compared to July and August?

Sales are expected to increase by 10 percent in September compared to the constant sales in July and August.

What is the markup percentage calculated from the gross profit and cost of sales, and what does it indicate?

The markup percentage is calculated as (Gross Profit / Cost of Sales) * 100. A markup percentage of 100% indicates that the gross profit is equal to the cost of sales.

How is the cost of sales for July and August determined if the markup is 100%?

If the markup is 100%, the cost of sales is determined by dividing the sales amount by 2, since the markup is the same as the cost price.

What is the expected change in rent income for August, and why?

The rent income is expected to increase by 10 percent in August because it is stated in the additional information that there will be an increase.

How is the interest expense on the mortgage calculated, and what changes occur in August?

The interest expense is calculated as the mortgage amount times the interest rate divided by 12. In August, a repayment of 10,000 is made, reducing the mortgage amount and thus the interest expense for the following months.

What is the expected increase in advertising, rates, water, and electricity expenses in August, and why?

Advertising, rates, water, and electricity expenses are expected to increase by 10 percent in August because it is stated in the additional information that these expenses will increase.

How are other operating expenses expected to change in September, and what is the reason for this change?

Other operating expenses, such as bank charges, insurance, repairs, salaries, stationary, and wages, are expected to increase by 20 percent in September due to a general increase in expenses as stated in the additional information.

Outlines

00:00

📊 Introduction to Projected Income Statement

The speaker introduces the concept of a projected income statement, which is a financial tool for estimating a business's income and expenses. They suggest referring to a YouTube video for a detailed explanation and emphasize the need for a company's previous year's income statement and balance sheet to prepare this projection. The process involves dividing the annual figures by 12 to estimate monthly figures, which is essential for businesses that plan on a monthly basis.

05:00

🔢 Calculating Monthly Sales and Markups

The speaker explains how to calculate monthly sales from the annual figures, using the example of 960,000 divided by 12, resulting in 80,000 per month. They discuss the expected constant sales for July and August and a 10% increase in September. Additionally, the concept of markup percentage is introduced, calculated as gross profit divided by cost of sales, multiplied by 100. The example given shows a 100% markup, meaning the selling price is double the cost price.

10:04

📈 Adjusting for Changes in Rent and Other Incomes

The speaker discusses adjustments to rental income, which is expected to increase by 10% in August. They calculate the monthly rental income from the annual figure and adjust it for the expected increase. They also mention the interest on fixed deposits, which remains unchanged, and the mortgage interest, which is calculated monthly and will decrease after a repayment in August.

15:07

🛠️ Depreciation and Equipment Purchase

The speaker explains the concept of depreciation, which remains fixed for July and August at 1050 per month, calculated from the annual figure. In September, the company plans to purchase equipment, and the depreciation for this new asset is calculated at 10%, resulting in an additional 400 for the month, increasing the total depreciation to 1450.

20:09

📈 Anticipated Increase in Operating Expenses

The speaker forecasts an increase in various operating expenses in August, such as advertising, rates, and utilities like water and electricity, all expected to rise by 10%. They calculate the new monthly costs after these increases and note that all other expenses are expected to rise by 20% in September, affecting items like bank charges, insurance, repairs, salaries, and stationary.

25:09

📊 Finalizing Operating Profit and Expenses

The speaker concludes by summarizing the operating expenses for July, including the costs of sales, rent, utilities, and other expenses, to determine the operating profit. They also account for interest income and expenses. The process is repeated for August with the adjusted figures, and the speaker thanks the audience for their attention.

Keywords

💡Projected Income Statement

A projected income statement is a financial tool used by businesses to estimate their future revenues and expenses for a specific period, typically a year. It helps in planning and decision-making. In the video, the projected income statement is the central focus, with the speaker guiding viewers on how to prepare it using the previous year's income statement and balance sheet.

💡Business Estimate

A business estimate refers to the anticipated financial figures for a business, including income and expenses. It is an essential part of financial planning and is closely related to the projected income statement. The script mentions it in the context of preparing the projected income statement, emphasizing its importance for understanding the business's financial expectations.

💡Previous Year Income Statement

The previous year income statement is a record of a business's financial performance over the past year. It includes details of the company's revenues, costs, and profits. In the script, it is used as a basis for calculating the monthly figures needed for the projected income statement.

💡Balance Sheet

A balance sheet is a financial statement that presents a company's financial position at a specific point in time, showing what the company owns and owes. It is used alongside the income statement to prepare the projected income statement, as it provides insights into the company's assets and liabilities.

💡Monthly Sales

Monthly sales refer to the total revenue generated from sales of goods or services within a month. In the video, the speaker calculates the monthly sales by dividing the annual sales figure by 12 and adjusting for expected changes in sales for the upcoming months.

💡Markup Percentage

The markup percentage is the rate at which the selling price exceeds the cost price, expressed as a percentage of the cost price. It is a key concept in the video, where the speaker explains how to calculate it by dividing the gross profit by the cost of sales and then multiplying by 100 to get the percentage.

💡Cost of Sales

Cost of sales, also known as cost of goods sold (COGS), is the total cost of producing or purchasing the goods that a company sells. In the script, the speaker uses the cost of sales to calculate the markup percentage and to determine the selling price based on a 100% markup.

💡Rental Income

Rental income is the revenue generated from renting out property or assets. In the video, the speaker discusses how to calculate the monthly rental income from the annual figure and how it is expected to increase by 10% in August.

💡Interest on Fixed Deposit

Interest on fixed deposit refers to the earnings received from depositing money in a fixed deposit account. The script mentions that the interest on a fixed deposit will remain unchanged throughout the year, and the speaker calculates the monthly interest by dividing the annual interest by 12.

💡Mortgage

A mortgage is a loan used to purchase property, where the property serves as collateral for the loan. In the video, the speaker explains how to calculate the monthly interest expense on a mortgage and how it will change after a portion of the mortgage is repaid in August.

💡Depreciation

Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. In the script, the speaker calculates the monthly depreciation expense and explains how it will increase in September due to the purchase of new equipment.

💡Operating Expenses

Operating expenses are the costs incurred in the normal course of business operations, excluding cost of goods sold. The video discusses various operating expenses such as advertising, rates, water and electricity, and how they are expected to increase in August and September.

💡Interest Expense

Interest expense is the cost of borrowing money, typically the interest paid on loans or debts. In the video, the speaker calculates the monthly interest expense on a mortgage before and after a repayment is made, showing how it affects the business's financials.

💡Operating Profit

Operating profit, also known as operating income or EBIT (Earnings Before Interest and Taxes), is the profit from a company's normal business operations, excluding the impact of non-operating items such as interest and taxes. The script explains how to calculate the operating profit by subtracting operating expenses from gross operating income.

Highlights

Introduction to the concept of a projected income statement and its importance for business planning.

Explanation of how to prepare a projected income statement using the previous year's income statement and balance sheet.

The method of dividing annual figures by 12 months to estimate monthly income and expenses for the projection.

Instructions on using the income statement for the year ended 30 June to project income for July, August, and September 2021.

Details on calculating monthly sales figures and adjusting for expected changes in sales volume.

The significance of maintaining a fixed markup percentage throughout the year for consistent pricing strategy.

How to calculate the markup percentage using gross profit and cost of sales.

Understanding the relationship between cost price, markup, and selling price in financial projections.

Projection of rental income changes, including a 10% increase in August.

The process of estimating monthly interest on fixed deposits and its role in operating profit.

Explanation of mortgage repayments and the subsequent impact on monthly interest expenses.

Depreciation calculations for equipment and its fixed monthly impact on financial statements.

Adjustment of operating expenses such as advertising, rates, water, and electricity in anticipation of a 10% increase in August.

Projection of other expenses, including bank charges, insurance, repairs, salaries, stationary, and wages, with a 20% increase expected in September.

Final calculations of operating profit by subtracting operating expenses from operating incomes.

The importance of adjusting financial projections for changes in expenses and income to reflect realistic business scenarios.

Conclusion summarizing the process and thanking the audience for their attention.

Transcripts

good day

today we are going to do

the projected income statement

so

if you don't know what is a projected

income statement

you can go

to my YouTube channel

um and then you'll find a video there

where I've explained what is a projected

income statement so actually the

projected income statement I can just

say in short

um and as well the business estimate

estimate

it's

incomes

and

expenses

Okay so

in order for the business to prepare the

projected income statement

the business will need

a

the previous year

income

statement

and also

the balance sheet

of the previous year

okay so in order for the business to

prepare the income statement

um

in order for the business to prepare the

projected income statement it will need

its previous year income statement and

also the balance sheet

okay and then

just like I said you just go to that

video and then you'll get a better

explanation okay and then after that

so

the business will need to go to the

amounts get a day in the projected

income I mean the business will need to

go to the previous year income statement

and then divide all the amounts by

um 12 months

so the reason we do that it is because

we're in the business

um

prepares the projected income statement

the business prepares the projected

income statement for months

okay four months so the income statement

the one that you will take for the

previous year it will be the income

statement of the whole year

the one that you know

the one that you know which is the

income statement it's the income

statement of the whole year that is why

we have to divide the amounts by 12 so

that you can know that how much are

these amounts per month

okay

so let's quickly go to the um

to the question okay use the income

statement for the year ended 30 June to

prepare the projected of Mark hobo a

Traders for July August and September

2021

so the year ends on 30 June 2021

so we are told to prepare the projected

for these three months

right so we are given the income

statement of the previous year

so what what you will need to do right

now is we have to divide these months by

12 so that we know that how much are

these amounts per month okay

um so let's go to the additional

information

letter A

average monthly sales are expected

to remain constant in July occurs and

will increase by 10 percent in

September now let's go to the sales

so the amount of sales here is 960 000.

960

000. so we want to know that how much

are the sales per month

how much are the sales per month

so we divide by 12.

so the sales they are 80

000 per month

okay so then here

we are told that uh average monthly

sales are expected to remain constant in

July and August so meaning that the

sales in July and August

um they will be eighty thousand

because we know that the sales they are

80 000 per month after doing this

calculation you can now know that the

sales they are 80 000 per month

but then

in September we are told that will

increase by 10 percent in September

so the sales per month there are eighty

thousand but then in September they will

increase by 10 percent

so 80 000 times

10 percent

how much is this

eighty thousand

times ten percent

so this is eight thousand

so they will increase by eight thousand

so eight thousand plus eighty thousand

that is going to give you 88

000. right

a net transaction

a fixed markup is maintained throughout

the year so the market the markup is the

same throughout the year now let's go

and look at this

so the first question is how do we

calculate the marker

percentage how to calculate the markup

percentage so to calculate the markup

percentage you must say gross profit

divide by cost of sales

and then we Times by hundreds

okay so the gross profit is four hundred

and eighty thousand

and then the cost of sales

they are for 80 000 also

times hundreds so therefore it means

that the markup is 100 in this case so

the markup is hundred percent

right so what we want right now is we

want to calculate the cost of sales for

this month so now we know that the

markup is hundred percent so what do we

know we know that cost price

plus markup

is equal to selling price right so the

markup is 100 is 100 right now

but then the cost price as you know

about the cost price is that the cost

price every time it must always be a

hundred percent

the cost price it must always be a

hundred percent

so 100 plus hundreds it is equal to 200.

so the selling price is 200 percent

right

so now let's come into the calculations

let's do the calculations

so here

for July we are going to say eighty

thousand

multiply by so

in this case we are given the sales they

are eighty thousand

so when doing these calculations every

time below you need to put what you have

so what you have in this case is the

sales they are eight thousand and the

sales they are 200 percent so below you

put what you have

and then above you put what you do what

you don't have

so what you don't have right now is the

cost of sales which a hundred percent

so this and this area is going to give

you 40 000.

so the cost of sales they are forty

thousand

okay

cost of sales forty thousand

obviously for these two they will be the

same

and then

for September

so that says for September

uh the difference so therefore let's do

their calculation

let's do their calculation for September

so September 8 is 88 000

times

uh hundreds over 200

is going to give you 44

000.

that is 44

000.

so when you take this and this it is

going to give you a gross profit 44 000.

gross profits of forty thousand

forty thousand okay

the next one

a monthly rental

charge to attendant will increase by 10

percent in August

monthly rental how much is the rent

income

the rent income given here is 38 400.

the rent income at least 88 400. this

this erase this

um 38 400.

38 400.

so we want to know that how much is the

rent per month remember I said that you

must divide these amounts of the

previous year income statement by 12.

so we have 38 100

divided by 12.

which is equal to three thousand two

hundred so this means that the rent

income

we know that the rent income it falls

under other operating incomes okay so

this means that the rent income per

month

the rent income per month it is 38 000.

but then in August we are told that

um

the rent income increased

the rent income increased

so let's see it

the rent income will increase by 10

percent in August

so right now the current income is 3.2

per month

but then from August it will increase by

10 percent

so 3.2 times 10 that is 310 20.

so this means that

from August the rent income is going to

be 3

510 20.

3520

so they did not say anything about

September

so this means there's the rent which is

going to be the same

so

uh we only have one column for the

incomes so it means that this is the

only income so obvious is going to be

the same

three thousand five twenty

eight thousand by Twenty

okay

gross profits plug are the operating

incomes that is a cross operating profit

this is a cross operating profit

so it is forty three thousand

five hundred and twenty

okay then this one

arrays 47 000. 510 20.

okay and then let's ID interest on fixed

deposit will remain unchanged so the

interest on fixed deposit will not

change

but here it is

3840.

the interest on fixed deposit is three

thousand eight foot

so we want to know that how much is the

interest on fixed deposit per month

remember we are doing the projected for

each each month okay so 3840

3840

divided by 12.

the member must divide this amount by

12.

so it is 320.

so we are told there's interest on fixed

deposit

so the interest on fixed deposit is

supposed to be here under operating

profit as the interest

income so it falls under the interest

income

so interest and fixed deposits is 320.

we are told that area is going to remain

unchanged

okay

um and then

The Firm has a mortgage of 50 000 with

the Kenny Bank

the rate of interest on this mortgage is

15 per annum ten percent of this smooth

gauge is repayable on the 1st of August

okay

um

first of August remember we are doing

for demands of July August and September

so we are told that 10 10 000 will be

paid on the 1st of August

right now let's go to the interest uh

alone

so it's given here it is 7.5

7.5

we want to know that how much

is it per month

so 7.5

7.5

divided by 12.

so it is 625.

interest expense it is 610 25.

this is the interest expense

okay the interest expense that is 625

but then

we had told you that from akas it is

going to change

okay so per month it is 625 so this one

is July

this one is before the change where it

is still 625 per month before uh the

change on the 1st of August

right

um so

it's this

um

okay

so on the 1st of August

10 000 of this mortgage will be paid

ten thousand of the mortgage will be

paid so

uh the same head

um

a mortgage of 50 000 by then on the

first of August 10 000 of 80 will be

paid so after paying that 10 000 it

means that

the remaining mortgage it is going to be

I mean forty thousand so this means that

now the business will be owing a

mortgage of 40

000. so now we have to calculate the

interest

on mortgage on the different amounts now

we are going to calculate it on the

different amount

Okay so

um

fifteen thousand I mean 15 percent

um

40 000 times

15 percent

times

okay we want to know this

and since that now the the mortgage is

forty thousand how much

is the interest on mortgage so because

we are calculating uh for for a customer

going to say times 1 over 12. remember

the 15 is the 15 p.m 15 per annum so

because we are calculating for August we

are going to say times 1 over 12.

okay forty thousand

times fifteen percent

times one divided by twelve

it is 500 front so this means that in

occurs the interest on the mortgage the

interest expense is going to be 500

range remember the interest I mean

remember the expense it must be under

brackets

okay so they did not say anything about

September so this means that it is going

to be the same

but there's no change for the interest

on September okay

um

letter f

depreciation will remain fixed for July

and August

okay let's quickly go to the

depreciation

12 600.

12600 depreciation

divided by 12.

um 12.6

divided by

12

that is 1050.

so the depreciation

per month it is

1050. and we were told

we're told that the depreciation will

remain fixed for July and August so

there is no change for July and August

that is going to be 1050.

1050.

and then

in September

The Firm will purchase equipment of 48

000 it will be depreciated at 10 percent

on Coast

Okay so

48 000

times

15 percent

yeah it's 10 percent

times ten percent times so because we

are calculating for only one month

remember this is ten percent Anna so

because we're calculating for only one

month we are going to say times 1 over

12.

so

that that depreciation for this new

equipment

it's a depreciation for this new

equipment

that is going to be how much in

September

it is going to be 400 front

so this means that now the depreciation

is increasing by 400 Trend so in

September the depreciation is going to

be for 400 plus 1050.

which is going to give you one thousand

four fifty

right

and then

letter G advertising rate water and

electricity are expected to increase by

10 in August

there is advertising

so advertising

is eighty thousand

advertising its 30 000

um okay we have the advertising

which is 80 000. in the income statement

of the previous year

advertising

so divide by 12.

30 000

divided by 12.

it is 2 500.

so the advertising per month it is two

thousand five hundredths okay

advertising per month it is two thousand

five hundred

and we are told that they are expected

to increase by 10 percent in August so

this means this

in July the advertising is going to be

2500 because there is no change

there is no change in the advertising

but then the change is going to be in

August here

so

2500

times

so it is expected to increase by 10

percent

times 10 percent

so 2.5 times 10 that is 250.

so this means that now the advertising

is going to be 2.5 uh plus 250 which is

is equal to 2750.

so obviously the one for September is

also going to be 2750 because they did

not say anything about September meaning

that and the one for August and

September they are going to be the same

okay

now the rates

the rates

the rates the

um 7 200.

the rates there are seven thousand two

hundredths

okay so we have the rates

yeah 7200

divided by two I mean twelve

seven thousand two hundredths

divided by 12.

that is 600 Rand

so this means that the rates

the r600 trend per month

they raise the assistant per month but

then in August they are expected to

increase

so this means that here in here in July

the rates there going to be 600 as we

know that there is their 600 per month

but then from a a cast They are going to

increase by 10 percent

so 600 times 10 percent

which is going to be 60 Rand

so if you add the two this means that

now the raids from occas they are going

to be 660.

per month

they are now 660.

38. and then the next one is water and

electricity

water and electricity

water and electricity

how much are they

water and electricity they are 42 000

divided by 12. 42

000

divided by 12.

there is 3.5

so this means that the water electricity

they are 3 500 per month

but then we are told that they are

expected to increase by 10 percent in

August so in July they are going to be

3.5

but then we are told that in August they

will increase by 10 percent

so times 10 percent

that there's going to be 350.

so if you add these two they will give

you 3

850. so now

um from occas

um the water electricity they are going

to be 3 850.

3810 50.

okay

and then

all other expenses I expected to

increase by twenty percent in September

all other expenses they are expected to

increase by ten percent in September

the start the first one

we have the bank charges

the bank charge use their twenty one

thousand

Bank

charges

okay

um

any churches they are twenty one

thousand

twenty one thousand six hundred

twenty one thousand six hundreds

divide by 12.

is equal to

one thousand eight hundredths

so we are told that how all other

expenses they are expected to increase

uh by 20 in September so this means that

um all attack all other expenses let's

are here that were not affected by these

adjustments

uh they will increase by 20 percent

so

we know that the bench I'll use their

1.8 per month

they are 1.8

but then we are told that in September

all other expenses they will increase by

20 percent

so 1.8 times at 20 percent

1800s

times 20 percent

it is going to be 360.

so 1800

Plus 360.

that is going to be

2000

160 so from September the bank charges

per month they are 2160.

okay

and then

um

another expense

it was not affected

as the insurance

the insurance is twenty one thousand

so we have the insurance

it is twenty one thousand

divided by 12.

21

000

divided by 12.

it is going to be one thousand seven

fifty so the insurance is one thousand

seven fifty per month

but then we are told there's all other

expenses that are expected to increase

by twenty percent in September so the

insurance here in September must

increase so 1750

times 10 percent

I mean 20 percent

1750

times 20 percent

that is going to be 350.

so if you add the two

they are going to give you

1750

plus 350

is going to be 2100.

okay

and then the next one it wasn't affected

erase the repairs which are twelve

thousand

that appears to a thousand

divided by 12 it is one thousand

right so

repairs

yeah one thousand per month

but then we are told that in September

the expected to increase by 20 percent

so you can just say that a 1000

um we can also say just times 120.

not this way

but it's we but you can just choose

which way you want to use

okay you can just say 1000 times 120

percent

is equal to

um

1200.

so if you don't get this one you get you

can just continue using the way this way

that we're using here

okay so it's 1.2

okay

after repairs

we have the salarys

which are one zero five six hundreds

thoroughly

a105 600

5 600.

divided by 12

it is equal to

8 000

800.

so the salary is per month they are 8

000 800.

800 but then we are told there's all

other expenses they are expected to

increase by

um 20 percent

in September so times 120 percent

like I said if you don't get this one

you can just continue using using this

one where we are seeing times twenty

percent and then again we add that

twenty percent

so 8.8

um times 120 percent

it is equal to ten thousand five sixty

so the salary is in September yeah ten

thousand five sixty

ten thousand five hundred ten sixty

and then

stationary

it is ten thousand six hundred

I mean stationer 10 800.

ten thousand eight sometimes

ten thousand eight hundredths divided by

12.

it is required to 900 trend

so

the stationary is

the front per month

but then it is going to increase by

twenty percent in September

so 900

times 120 percent

is equal to

is equal to one thousand and eight

one thousand and eight

so the remaining one

that is the wages

which are 62 67 800.

wages

67 800.

sixty seven thousand eight hundreds

divided by 12.

that is five thousand six fifty

the wages gas is thousand

Five Sixty

six thousand Five Sixty per month

that is 5650

5650

[Music]

650.

5650

averages per month

5650 and then the expected to increase

in September by 20 percent

so

times

120 percent

780.

that is going to pay six thousand seven

eight

okay

now let's do the calculations this

calculates all these expenses

so

5650 for July

plus 900

plus 8000 800 plus 1000

plus 3.5

plus 600

plus 2.5

plus 1050

so the operating expenses they are 27

000.

550.

so gross operating incomes minus this

so across operating comes they are 43

200.

so therefore the operating profit it is

15 650.

right plus the interest income

so fifteen thousand six fifty

plus the interest income of 320. there

is going to be fifteen thousand

nine seventh

minus the interest expense of 625

so

that is going to be

15 triple 345.

3.5

and then

a cast we are going to do the same thing

in August and then we follow the same

procedure then we get this amount

and thank you so much thank you