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Business Applications

Here are the solutions to the exercises: 1. Sales tax rate = Sales tax/Purchase price * 100% = 87/2354 * 100% = 3.7% 2. Bea's capital ratio = 16,000/41,000 = 39% Camille's capital ratio = 25,000/41,000 = 61% Bea's share = 5,500 * 39% = 2,145 Camille's share = 5,500 * 61% = 3,355 3. Return on investment = Net profit/Capital * 100% Net profit = Capital * Return on investment/100% = 1,700,000 * 15%/100% = 255,

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211 views

Business Applications

Here are the solutions to the exercises: 1. Sales tax rate = Sales tax/Purchase price * 100% = 87/2354 * 100% = 3.7% 2. Bea's capital ratio = 16,000/41,000 = 39% Camille's capital ratio = 25,000/41,000 = 61% Bea's share = 5,500 * 39% = 2,145 Camille's share = 5,500 * 61% = 3,355 3. Return on investment = Net profit/Capital * 100% Net profit = Capital * Return on investment/100% = 1,700,000 * 15%/100% = 255,

Uploaded by

Adair Vin
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We take content rights seriously. If you suspect this is your content, claim it here.
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BUSINESS APPLICATIONS

Lesson Objectives

At the end of this lesson, the students should be able to:


1. solve partnership problems;
2. solve tax problems;
3. perform vertical analysis of financial statements;
4. perform horizontal analysis of financial statements;
and
5. perform ratio analysis.
Partnership Problems
Partners A, B, and C share profits and losses: 20% to A,
30% to B, and 50% to C. Compute the share of each if
the partnership earned a net income of ₱15,000.
Given: A = 20% B = 30% C = 50% Net = ₱15,000
P = BR
A = ₱15,000 20% = ₱3,000
B = ₱15,000 30% = ₱4,500
C = ₱15,000 50% = ₱7,500
Partnership Problems
X and Y are partners with capital balance of Php20,000.00
and Php30,000.00, respectively. They agreed to divide
profits and losses according to their capital ratio. Find the
share or share of each in a net loss of php10,000.00
Given: X, Capital = Php20,000.00
Y, Capital = Php30,000.00
Net loss = Php10,000.00
P/L ratio = Capital ratio
Find: Share of X and Y
Partnership Problems

P = BR
X = ₱10,000
= 10,000.00 x ₱4,000
Y = ₱10,000
= 10,000.00 x ₱6,000
Net loss = ₱10,000.00
Partnership Problems
Partners N, L, and M agreed to form a partnership and share
profits and losses at a ratio of 1:1:2. They further agreed that
their capital should be in the same proportionate
relationship as their P/L ratio. Their agreed capital is
Php100,000.00. how much capital contribution should each
of them make?
Given: P/L ratio = N:L:M = 1:1:2
Agreed capitalization = Php100,000.00
P/L = Capital ratio
Find: Capital Contribution of each partner
Partnership Problems

Given: P/L ratio = N:L:M = 1:1:2


Agreed capitalization = Php100,000.00
P/L = Capital ratio
Find: Capital Contribution of each partner
N = 100,000.00 x
N = 100,000.00 x
N = 100,000.00 x
Tax Problems
A corporation earned ₱36,800 in net income before
tax. If the corporation’s income tax is 35%, compute
for the net income after tax.

Given: Net income before tax (NIBT) = ₱36,800


Income tax rate (ITR) = 35%
Net income after tax (NIAT) = NIBT – Income Tax
Tax Problems

NIAT = NIBT – Income Tax


= NIBT – (NIBT
= ₱36,800 – (₱36,800 35%)
= ₱36,800 – ₱12,880
= ₱23,920
Vertical Analysis of Financial
Statements
Primarily involves the comparison of one
number with another identity significant
relationships. Vertical analysis is used in the
preparation of common-size statements.
COMMON-SIZE STATEMENTS are financial
statement expressed in percent
Vertical Analysis of Financial
Statements
1. Convert the following Income Statements to a
common-size statement:
Excelsior Enterprises
Income Statement
For the Month Ended June 30, 2010
Net Sales ₱150 000.00
Less: Cost of Sales ₱ 90 000.00
Gross Profit ₱ 60 000.00
Less: Operating Expenses ₱ 35 000.00
Net Income ₱ 25 000.00
Net Sales ₱150 000.00
Less: Cost of Sales ₱ 90 000.00
Gross Profit ₱ 60 000.00
Less: Operating Expenses ₱ 35 000.00
Net Income ₱ 25 000.00

Net Sales 100%


Less: Cost of Sales = 60%
Gross Profit = 40%
Less: Operating Expenses = 23.33%
Net Income = 16.67%
Ratio Analysis – Profitability Ratios

1. Return on Owner’s Investment (ROI)


If a company earns a net profit of ₱100,000 and the
capital of the owner is ₱1,000,000, the ROI would be:
ROI =
=
= 10%
Ratio Analysis – Profitability Ratios

2. Profit Margin or Return of Sales (ROS)


If a company earned a net profit of ₱100,000 from
the generated sales of ₱900,000, the return on sales
or profit margin would be:
ROI =
=
= 11.11%
Liquidity/Solvency Ratios
1. Current Ratio
If a company has ₱300,000 current assets and
₱100,000 current liabilities, its current ratio would be:
Current ratio =
= =
= 3:1
For every ₱1 of liability or debt, the company has ₱3 to pay it.
Liquidity/Solvency Ratios
2. Debt Ratio
Assuming a firm with total liabilities of ₱450,000 and
total assets of ₱900,000, the debt ratio would be:
Debt ratio =
= =
= 1:2
The firm has ₱1 liability for ₱2 total assets.
Horizontal Analysis
Let us study the following trend analysis of the
comparative income statements of a certain firm:
201B 201A Amount %
(P000) (P000) (P000) R
Q2 Q1

Sales 150 125 25 20.00


Cost of Sales 90 70 20 28.57
Gross Profit 60 55 15 27.27
Operating Expenses 35 45 (10) (22.22)
Net Income 25 10 15 150.00
Horizontal Analysis
Getting the percent of increase/(decrease):

For the operating expenses:


Exercises:
1. What is the tax rate of a product if Martin paid 2,354 with
included 87 as sales tax?
2. Bea and Camille agreed to share profits and losses
according to their capital ratio. Using Bea’s capital of
16,000 and Camille’s 25,000, find the share of each in a
net loss of 5,500.
3. If a company has a return of investment of 15% and a
capital of 1,700,000, what is the company’s net profit?
4. A company has a current ratio of 4:1. If the company has
100,000 current assets, what is their current liabilities?

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