Statement of Business Income IP

The purchase consideration is based on the net income reported by the business enterprise . Indeed the maximum payment that can be provided equates 20 times the net income generated by the organization . In this respect it is important to calculate the net income of the firm for the month of November in to determine such maximum price . The profit statement is computed below

Projected Profit Statement for the month of November

Sales Revenue 16 ,400

Less : Operating Expenses

Utilities Expense 900

Depreciation Expense (see note 1 ) 1 ,560

Salary

Expense 3 ,400

Other Expense 2 ,750

Manager Salary 3 ,000 11 ,610

Net Income 4 ,790The net income reported amounts to 4 ,790 . In this respect the maximum purchase consideration equates to 95 ,800 4 ,790 x 20

When considering the purchase of an enterprise it is pertinent that one does not solely focus on the profitability of the organisation . It is also important to take into accountant the resources of the organisation , together with the short-term liabilities and finance mediums adopted . In addition , Benjamin OHenry stated that he will take the ending capital with him . Therefore it is imperative that a Balance Sheet is prepared . This encompasses a statement that portrays the balances of assets , liabilities and capital of the business enterprise at a particular date . The Balance Sheet is portrayed below

Balance Sheet as at 30th November 20XX

Fixed Assets

Furniture , fixtures and equipment 151 ,300

Accumulated Depreciation 17 ,160 134 ,140 Current Assets

Accounts Receivable 7 ,900

Prepaid Expenses 2 ,600

Cash 9 ,700

20 ,200

Current Liabilities

Accounts Payable 3 ,800

Unearned Service Revenue 6 ,700

10 ,500

Working Capital 9 ,700

Net Assets Value 143 ,840 Financed by

Owner 's Equity 143 ,840 The substantially higher than the maximum purchase consideration of 95 ,800 However , by computing the ending capital that Benjamin will take , one can note that the resulting net assts would only amount to 3 ,650 . This ending capital computation is portrayed below

Determination of Ending Capital

Opening Capital as at November 137 ,400

Net Income for the month 4 ,790

Drawings for the month (2 ,000

Ohenry Ending Capital 140 ,190 Therefore before offering a price it is important that the additional capital investment needed to continue the operations is kept in mind

Reference

Wood F Sangster A (2002 . Business Accounting 1 . Ninth Edition Essex : Pearson Education Limited

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