BBDM3093 ENTREPRENEURSHIP

TUTORIAL 3
Richard Kok has just graduated with a degree in accounting, but he sees no real satisfaction in pursuing a
career in audit or taxation. It is just a lot of mundane work lacking in creativity and innovation,
commented Richard. Instead, he yearns to put his interest in business management to the test by opening a
theme caf. He has done some market research and realised that theme cafes seem to be the trend among
young people today. Excitedly, he took up a piece of paper and armed with a pencil and calculator, he
started to do some financial planning. You happened to be around and decided to assist Richard to do the
manual accounting paperwork. He provided you with some figures to get you going (see Appendices 1, 2
and 3).
Appendix 1
Capital, Startup Expenses and Fund Requirements
Item
Renovation

Cost (RM)

Life (Years)

Depreciation (RM) per year

300,000

60,000

Kitchen equipment and utensils

60,000

12,000

Computer hardware and software

30,000

6,000

Furniture & fittings

80,000

16,000

Other capital expenses

40,000

8,000

Total Capital Expenses

510,000

Deposits & prepayments

100,000

Pre-operating expenses

40,000

Working capital

150,000

Total Investment

800,000

Paid-in capital

400,000

Bank loan

400,000

Total Financing

800,000

102,000

Appendix 2
1

Fixed Assumptions, Variable Assumptions and Projected Sales

Fixed

RM

Annual accounting, audit & secretarial fees

12,000

Annual insurance

8,000

Annual directors remuneration

60,000

Monthly rental

15,000

Monthly utilities

3,000

Monthly miscellaneous overheads

6,000

Monthly staff salaries (increase 5% every quarter)

40,000

Employees provident fund and social security insurance

10% of salaries

Quarterly advertising & promotions

20,000

Taxes

25%

Loan tenure (principal repayment every quarter)

10 years

Loan interest

12% per annum

Pre-operating expenses

To be amortised over 2 years

Variable

RM

Average revenue per customer

30

Average food cost per customer

10

Projected Sales
Quarter

Q1

Q2

Q3

Q4

Number of business days

90

91

92

92

100

150

200

250

Estimated number customers

Appendix 3
PRO FORMA PROFIT & LOSS STATEMENT (YEAR 1) in RM

Q1
Sales revenue
Less: Cost of sales
Gross profit

Q2

Q3

Q4

TOTAL

270,000
90,000
180.000

Less: Expenses
Accounting, audit & secretarial fees

3,000

Insurance

2,000

Directors remuneration

15,000

Rental

45,000

Utilities

9,000

Miscellaneous overheads
Staff salaries

18,000
120,000

EPF and social security insurance

12,000

Advertising & promotions

20,000

Amortisation of pre-operating expenses

5,000

Depreciation

25,500

Loan interest

12,000

Total expenses
Net profit/(loss) before tax
Less: Tax @ 25%

286,500
(106,500)
-

Net profit/(loss) after tax

(106,500)

Cumulative profit/(loss) after tax

(106,500)

Note: You should round any computed figures to the nearest TEN (10) Ringgit.

Required:
(a)

Using Appendix 3 as a guide, complete the first year pro forma profit and loss statement. Show
all your workings in deriving the figures.
(25 marks)

(b)

Using your answers in Question (a) above, estimate the number of months required to breakeven.
Show your workings. State any assumptions which you may make.
(10 marks)

(c)

Critically assess any THREE (3) assumptions used in breakeven analysis.

(15 marks)
[Total: 50 marks]

Guidelines to students:
Question (a) requires you to fill up all the boxes (with the exception of the box in the bottom right corner)
in Appendix 3. Round up all figures to the nearest TEN (10) ringgit. Show your workings clearly and
systematically on separate pages.
Marking Scheme:
4 columns x 5 marks = 20 marks
For each column, deduct 1 mark for every error. Student should not be penalized for wrong figures as a
result of errors that cascade down from the top.
Clear and systematic display of workings

5 marks

Disorderly/Erroneous workings

2 marks

No workings shown

0 marks

Question (b) requires you to determine the breakeven period by using interpolation. Show your workings
and state (no need to explain) your assumptions.
Marking Scheme:
Correct/Wrong answer with clear/right workings shown
(Based on students answer in Q(a))

5 marks

Correct answer with no/erroneous workings shown

0 marks

Assumptions:

5 marks

5 assumptions x 1 mark

Question (c) requires you to critically assess the assumptions used in breakeven analysis. Your answers
must therefore contain elements of critical assessment, not just pure explanations of the descriptions of
the assumptions.
Marking Scheme:
Category
Excellent

Marks
5

Description
Very well-explained indicating extensive reading, effectively communicated
(negligible number of grammatical and spelling errors, proper sentence
4

Good

Average

Irrelevant/Poor

02

structures facilitating ease of understanding), contains elements of critical

assessment, relevant examples are given.
Well-explained, indicating some reading, effectively communicated,
contains elements of critical assessment, relevant examples are given.
Acceptable level of explanation, indicating limited reading, not effectively
communicated due to language proficiency issues, does not contain
elements of critical assessment, relevant examples are given.
Erroneous/Shallow explanations, indicating last-minute-rush job, poorly
communicated, does not contain elements of critical assessment, no
examples are given.