Chapter V

Financial Aspect
Financial aspects consider various areas such as start-up capital, expenses, revenues,
and financial statements necessary in assessing the financial feasibility of the study.

Financial Statements
Financial statements are the means by which the information accumulated and
processed in financial accounting is periodically communicated to the users. These actually are
the end-products of the accounting cycle.

Income Statement
The income statement is a statement showing the performance of the company for a
given period of time. It summarizes the revenues earned and the expenses incurred for that
period of time. Information about the performance of a company, in particular its profitability, is
required in order to asses potential changes in the economic resources that it is likely to control
in the future. It is also useful in predicting the capacity of the company to generate cash flows
from its existing resource base.

Statement of Changes in Equity

This statement summarizes the changes that occurred in owners or partners equity.
Changes in the companys equity between two balance sheet dates reflect the increase or
decrease in its assets during the period.

Statement of Financial Position

The statement of financial position is a statement that shows the financial position or
condition of an entity by listing the assets, liabilities and owners equity as at a specific date. The

information needed for this statement is the net balances at the end of the period, rather than
the total for the period as in the income statement.

Statement of Cash Flows

Tis statement provides information about the cash receipts and cash payments of an
entity during a period. It is a formal statement that classifies cash receipts and cash payments
into operating, investing and financial activities. It shows the net increase or decrease in cash
during the period and the cash balance at the end of the period. It also helps project the future
net cash flows of the entity. (Source: Basic Accounting, Win Ballada, 2010)

Major Financial Assumptions

1. Supplies and Raw Materials are expected to increase by 3.74% because of the inflation
computed as follows:
Year
Inflation Rate
2010
3.8
2011
4.6
2012
3.2
2013
3.0
2014
4.1
(Source: http://psa.gov.ph/content/summary-inflation-report-consumer-price-index-2006100dec-2014)
2. The business will be cash basis.
3. Sales in units will increase by 5.7% every year, based on the growth rate of the projected
supply. (Source: National Accounts of the Philippines, NCSB)
4. Depreciable assets will be depreciated using the straight line method.
5. There will be no work in process inventory at the end of each year.
6. There will be no ending inventory for finished goods.
7. The firm is a VAT registered business.
8. An accrual for income taxes shall be considered in the financial statements.
9. Salaries of employees will increase by 3.74% annually.
10. Rent Expense will be allocated 100% for factory only.
11. Utilities Expense will be allocated 100% for factory only.
12. Repairs and Maintenance is expected to increase by 3.74% per year.
13. Promotion and Marketing Expenses will increase by 3.74% each year.
14. The mark up for the product will be 20% of the production cost per unit.
15. Amortization of the Leasehold Improvements will be allocated 100% for factory only.
16. Expenses are assumed to be paid the following month.

17. Employee Benefits Expense is for all the employees.