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Topic 2, Lesson 2
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Financial information

Dan Wells November 5, 2021
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Here are some highlights taken from last month’s June 20X2 management accounts:


The company forecasts monthly recurring revenue of $500,000 in the month of December 20X2, with incremental new client wins of $25,000 per month from January 20X3 onwards.

The gross profit margin has been 90% to date and is forecast to remain at 90% into the future.

VSC has a 100% customer retention rate to date.  This is likely to remain until December 20X4, after which the company expects 15% of its closing year-end customers to churn in January every year from January 20X5 onwards.

Cost base

Within its current operating model, VSC expects to have the following monthly costs in December 20X2:

  • Employee costs (including taxes) $700,000 – increasing at $5,000 per month from January 20X3 onwards
  • Other costs $50,000 – increasing at $1,000 per month from January 20X3 onwards

Working capital

All debtors (accounts receivable) and creditors (accounts payable) are settled in the month following the transaction.

The VSC bank account does not earn interest on any positive balances. There is no overdraft facility available.

Corporation tax

The company has a fixed income tax rate of 20%, which is applied to the profit before income tax figure and is paid in the same month.  Tax credits of 20% are received for any losses before tax in the same month.

Balance sheet

The company forecasts the following balance sheet closing position as at 31 December 20X2:

Assets ($’000s)

  • Investment property: 5,000
  • Property, plant and equipment: 500
  • Cash and cash equivalents: 430
  • Trade receivables (current): 500

Equity ($’000s)

  • Share capital/premium: 5,000
  • Retained earnings: 630

Liabilities ($’000s)

  • Trade payables: 800
  • Borrowings (current): nil
  • Borrowings (non-current): nil

Accounting policies

The investment property (i.e. the company office) is held at its market valuation of $5 million.  This is not expected to change within the next ten years.

Property, plant and equipment are held at cost.

VSC does not apply depreciation or amortization towards any long-term assets.