BUSINESS FINANCE

QUARTER 3
WEEK 1 – INTRODUCTION TO FINANCIAL MANAGEMENT

I. Definition of Finance
Finance is the science and art of managing money (Gitman & Zutter,2012). It is considered
as a science because it has an organized body of knowledge which contains certain universal
truth. It is called an art because finance managing requires certain skills which are personal
possessions of managers. Science provides the knowledge and art deals with the application
of knowledge and skills.

Finance can also be defined as the management of money and includes activities such as
investing, borrowing, lending, budgeting, saving, and forecasting.

This definition explains that finance is directly involved in managing money with appropriate
objective of proper usage. It also provides an overview of how an individual, a business entity
or a local government unit finances are managed in generating their revenue, spending and
debt.

Finance, as a branch of theory and practice from economics that arose during the early
1940s and 1950s through Black, Markowitz, Tobin, Treynor, Sharpe and Scholes focused on
some topics such as money, banking, lending, and investing.

Today, finance is typically broken down into three categories which will explain the
broadness of finance: the Personal Finance, Business or Corporate Finance and Public or
Government Finance.

PRIVATE FINANCE PUBLIC FINANCE

Personal Finance Business Finance Government Finance
It focuses mainly on meeting It is the raising and It is the management of a
the individual or a person and managing of funds by country’s revenue,
caters for both long and short business organizations. expenditures, and debt
load through various
term financial goals. government and quasi
government institutions.
It is also called the fiscal
finance.
Figure 1. Categories of Finance

I. Private Finance is the management and analysis of the financial activities of an

individual, household, business enterprise, etc. which may cover savings, investments,
insurance, banking, personal loans, tax management, credibility, fixed deposits,
retirement planning, real estate planning and so forth. Private finance includes
personal and business finance.
Personal category, finance is concerned with individuals’ decisions about how much
of their earnings they spend, how much they save, and how they invest their savings.
Business finance on the other hand deals in what fixed assets to invest, how to raise
money for investment, how to manage short term cash flows and how to reinvest.
II. Public Finance includes management on public revenue, public expenditure, public
debt, financial administration, budget, accounts, auditing and financial control.
II. The Individuals Involved in Financial Management in an Organization

Figure 2: Illustration of the Corporate Organization Structure

From the diagram presented, each line is working for the interest of the person on the line
above them. The goal of each individual in a corporate organization should have an objective
of shareholders’ wealth maximization.

Shareholders: The shareholders elect the Board of Directors (BOD). Each share held is
equal to one voting right.

Board of Directors: The board of directors is the highest policy making body in a
corporation. It’s primary responsibility is to ensure that the corporation is operating to
serve the best interest of the stockholders with the following responsibilities: Setting
policies on investments, capital structure and dividend policies; Approving company’s
strategies, goals and budgets; Appointing and removing members of the top
management including the president; Determining top management’s compensation;
Approving the information and other disclosures reported in the financial statements
(Cayanan, 2015)

President (Chief Executive Officer): Among the responsibilities of a president are

the following: Overseeing the operations of a company and ensuring that the strategies
as approved by the board are implemented as planned; performing all areas of
management: planning, organizing, staffing, directing and controlling; representing the
company in professional, social, and civic activities.

VP for Marketing: The following are among the responsibilities of VP for Marketing -
Formulating marketing strategies and plans. - Directing and coordinating company
sales. - Performing market and competitor analysis. - Analyzing and evaluating the
effectiveness and cost of marketing methods applied. - Conducting or directing
research that will allow the company identify new marketing opportunities, e.g. variants
of the existing products/services already offered in the market. - Promoting good
relationships with customers and distributors. (Cayanan, 2015)
 VP for Production: The following are among the responsibilities of VP for Production:
Ensuring production meets customer demands; identifying production technology/process
that minimizes production cost and make the company cost competitive; coming up with a
production plan that maximizes the utilization of the company’s production facilities;
iIdentifying adequate and cheap raw material suppliers. (Cayanan, 2015)

VP for Administration: The following are among the responsibilities of VP for

Administration: Coordinating the functions of administration, finance, and marketing
departments; assisting other departments in hiring employees; providing assistance in
payroll preparation, payment of vendors, and collection of receivables; determining the
location and the maximum amount of office space needed by the company.Identifying
means, processes, or systems that will minimize the operating costs of the company.
(Cayanan, 2015)

VP for Finance. Below are the responsibilities of VP for Finance or Financial Manager:

III. Primary Activities of Financial Managers and How it Helps to Achieve

Organizational Goals
a. Financing Decisions (raising money). It includes making decisions on how to fund
long term investments (such as company expansions) and working capital which deals
with the day to day operations of the company (i.e., purchase of inventory, payment of
operating expenses, etc.).

There are situations when an organization lack of funds. One of the role for VP for
Finance or the finance manager is to determine the appropriate capital structure of the
company in order to finance the projects.

Capital structure refers to how much of your total assets is financed by debt and
how much is financed by equity. To illustrate, show/draw the figure below:

Figure 3. Sample of Capital Structure

To be able to acquire assets, funds must have come somewhere. If it was bought using
cash from our owners’ pocket, it is financed by equity. On the other hand, if the money
is from borrowings, the asset bought is financed by debt. The figure above shows that
the company total asset is financed by 30% debt and 70% equity. Thus, the Capital
Structure is 30% debt and 70% equity.
b. Investing (spending money). It is investing the firm’s funds in projects and
securities that provide high returns in relation to their risks .
The Financial Manager use financial tools like budgeting, forecasting and capital
budgeting analysis to determine what investment to take, either short term or long
term. Short term is needed if the company has an excess cash positions whereas, the
long term visions profitability in the long run especially if the investment will be
financed by debt.

c. Operating Decisions. The role of the VP for finance is determining how to finance
working capital accounts such as accounts receivable and inventories. The company
has a choice on whether to finance working capital needs by long term or short term
sources. A financial manager knows that a basic principle in finance is that the higher
the risk, the greater the return that is required. This widely accepted concept is called
the risk-return trade. In this case, the choice to invest depends on the risk and return
trade off that management is willing to take.

d. Declaring Dividend Policies. Cash dividends are paid by corporations to existing

shareholders based on their shareholdings in the company as a return on their
investment. Some investors buy stocks because of the dividends they expect to receive
from the company. Non-declaration of dividends may disappoint these investors.
Hence, it is the role of a financial manager to determine when the company should
declare cash dividends.

Before a company may be able to declare cash dividends, two conditions must exist:
1. The company must have enough retained earnings (accumulated profits) to support
cash dividend declaration.
2. The company must have cash.
Financial managers ensure the financial health of an organization through investment
activities and long-term financing strategies.
 Lesson 1: BUSINESS FINANCE – INTRODUCTION TO FINANCIAL MANAGEMENT

Activity 1: Fill in the Blank. Supply the sentence with correct words.
Write your answer on your answer sheet.

1. Finance is the _________ and _______ of managing money.

2. _____________________ includes making decisions on how to fund
__________ investments (such as company expansions) and working
capital which deals with the day to day operations of the company
(i.e., purchase of inventory, payment of operating expenses, etc.).
3. In investing, the ____________________use _____________ like
budgeting, forecasting and capital budgeting analysis to determine
what investment to take, either short term or long term.
4. It is the role of a financial manager to ____________ when the
company should declare ________________.
5. Financial managers ensure the _______________ of an
organization through ______________ activities and long-term
financing strategies.

Assessment 1. Enumeration. Give what is asked on the items below. Write

your answers on your answer sheet.

Items Answer
1. Give six (6) activities of finance
according to its definition:
2. Give three (3) categories of
finance:
3. Give the four (4) primary activities
of financial manager:
4. Give one (1) goal of individuals in
a company:
5. Name the position of a financial
manager.
Assessment 2:

How do you find financial management? After learning the

definitions of finance, its categories and the primary roles of
financial managers, why do you think it is important to understand
the principles of finance?

BUSINESS FINANCE CONTINUATON

Distinguishing Financial Institution from Financial Instrument and Financial Market

1. Financial institution- companies in the financial sector that provide a broad range of
business and services including banking, insurance, and investment management.
Types of Financial Institutions
A. Depository Institutions are allowed to accept monetary deposits from the
consumers legally. These include commercial banks, savings banks, credit unions,
and savings and loan associations.
A.1. Commercial Banks – Commercial banks accept deposits from the public and
offer security to their customers. Due to commercial banks, it is no longer required
to keep huge large currency on hand. Using commercial bank facilities, transactions
can be done through checks or credit/debit cards.
A.2. Saving Banks – Saving banks perform the function of accepting the savings
from the individuals and lending to the other consumers.
A.3. Credit Unions – Credit unions are the associations that are created, owned, and
also operated by the participants who are voluntarily associated with saving their
money and then lending it members of their union only. As such, these institutions
are the not-forprofit organizations enjoying tax-exempt status.
A.4. Saving and Loan Association – These institutions collect the funds of many of
the small savers and then lend them to home buyers or other types of borrowers.
They specialize in providing help to the people in getting residential mortgages.
B. Non-Depository Institutions - institutions serve as the intermediary between the
savers and the borrowers, but they do not accept the time deposits. Such
institutions perform their activities of lending to the public either by way of selling
securities or through the insurance policies.

B.1. Insurance Companies - Individuals purchase insurance (life, property and

casualty, and health) protection with insurance premiums. The insurance companies
pool these payments and invest the proceeds in various securities until the funds
needed to pay off claims by policyholders. Because they often own large blocks of a
firm’s stocks or bonds, they frequently attempt to influence the management of the
firm to improve the firm’s performance, and ultimately, the performance of the
securities they own.

B.2. Mutual Funds - Mutual funds owned by investment companies that enable
small investors to enjoy the benefits of investing in a diversified portfolio of
securities purchased on their behalf by professional investment managers. When
mutual funds use money from investors to invest in newly issued debt or equity
securities, they finance new investment by firms. Conversely, when they invest in
debt or equity securities already held by investors, they are transferring ownership
of the securities among investors.

B.3. Pension Funds - Financial institutions that receive payments from employees
and invest the proceeds on their behalf.
Other financial institutions include pension funds like Government Service Insurance
System (GSIS) and Social Security System (SSS), unit investment trust fund (UITF),
investment banks, and credit unions, among others.
2. Financial Instrument - is a real or a virtual document representing a legal agreement
involving some sort of monetary value. These can be debt securities like corporate bonds or
equity like shares of stock. When a financial instrument issued, it gives rise to a financial
asset on one hand and a financial liability or equity instrument on the other.
2.A. Financial Asset
• Cash
• An equity instrument of another entity
• A contractual right to receive cash or another financial asset from another entity.
• A contractual right to exchange instruments with another entity under conditions
that are potentially favorable. (IAS 32.11)
• Examples: Notes Receivable, Loans Receivable, Investment in Stocks, Investment in
Bonds
2.B. Financial Liability is any liability that is a contractual obligation:
• To deliver cash or other financial instrument to another entity.
• To exchange financial instruments with another entity under conditions that are
potentially unfavorable. (IAS 32)
• Examples: Notes Payable, Loans Payable, Bonds Payable
2.C. An Equity Instrument is any contract that evidences a residual interest in
the assets of an entity after deducting all liabilities. (IAS 32)
• Examples: Ordinary Share Capital, Preference Share Capital
• Identify common examples of Debt and Equity Instruments.
2.D. Debt Instruments generally have fixed returns due to fixed interest rates.
Examples: Treasury Bonds and Treasury Bills issued by the Philippine government,
Corporate Bonds issued by publicly listed companies.
2.E. Equity Instruments generally have varied returns based on the
performance of the issuing company. Returns from equity instruments
come from either dividends or stock price appreciation.
Types of Equity Instrument
•Preferred Stock- holders have priority over a common stock in terms of claims over the
assets of a company.
• Common Stock- holders are the real owners of the company
3. Financial Market - refers to a marketplace, where creation and trading of financial assets,
such as shares, debentures, bonds, derivatives, currencies, etc. take place.
Types of Financial Market
3.A. Stock market- trades shares of ownership of public companies. Each share
comes with a price, and investors make money with the stocks when they perform
well in the market. It is easy to buy stocks. The real challenge is in choosing the
right stocks that will earn money for the investor.
3.B. Bond market- offers opportunities for companies and the government to secure
money to finance a project or investment. In a bond market, investors buy bonds
from a company, and the company returns the amount of the bonds within an
agreed period, plus interest.
3.C. Commodities market- traders and investors buy and sell natural resources or
commodities such as corn, oil, meat, and gold. A specific market is created for
such resources because their price is unpredictable. There is a commodities
futures market wherein the price of items that are to be delivered at a given future
time is already identified and sealed today.
3.D. Derivatives market- involves derivatives or contracts whose value is based on
the market value of the asset being traded. The futures mentioned above in the
commodities market is an example of a derivative.
Module :Distinguishing Financial Institution from Financial Instrument and Financial
Market

GROUP ACTIVITY
Direction: Write three examples of each circle and describe it briefly.
For example: Financial Instruments: My answer is cash-It is used for exchange of something
you
want to buy
(describe your answer on each circle
)

Financial Financial Financial

Institution Instruments Market

Criteria in Scoring:
 Complete ( 9 ) - 15 points
Incomplete ( 6-8 ) - 12 points
Incomplete ( 1-5 ) - 8 points
No answer - 1 points

INDIVIDUAL ACTIVITY 1:
Direction: Answer the questions below, write it in your notebook.
1. That _________________________ plays a vital role in the finances of the organization.
2. That _______________________is different from financial instruments and financial market.
3. It is the function of the __________________________ to ensure proper management of
organization’s finances.
INDIVIDUAL ACTIVITY 2:
General Instruction: Provide what is being asked in each item. Write your answer in your
notebook. Choose the correct answer from the choices given in each item.

1. Raul is the Finance Manager of GYB Corp. He allocated funds in such a manner that they
are optimally used. What financial function does he practice?
A. Raising of Funds C. Profit Planning
B. Allocation of Funds D. Understanding Capital Markets
2. Laurence is part of the top management of ABC Corporation. takes care of all the important
financial functions of an organization. What role does he manifest?
A. Role of a VP for Marketing C. Role of a VP for Administration
B. Role of a VP for Production D. Role of a VP for Finance
3. These are companies in the financial sector that provide a broad range of business and
services including banking, insurance, and investment management.
A. Financial institutions B. Financial Intermediaries
C. Financial instruments D. Financial Market

4. Depository institutions are allowed to accept monetary deposits from the consumers
legally. Which among the following is not included in this kind of institution?
A. Banks B. Savings banks C. Credit unions D. Pawnshops
5. What type of depository institution that it is no longer required to keep huge large currency
on hand?
A. Commercial Banks B. Saving Banks
C. Credit Unions D. Saving and Loan Association

II. Enumeration.
6-7 Name the general classification of Financial Institution
8-9 Give two types of equity instrument. (8-9)

III. Essay
10 – 15. Distinguish a financial institution from financial instrument and financial market.
 BUSINESS FINANCE: MODULE 2
THE FINANCIAL PLANNING AND TOOLS
After lesson, you are expected to:
Identify the steps in the financial planning process (ABM_BF12-IIIc-d-10)
a. define financial planning;
b. explain the importance of financial planning; and
c. illustrate the financial planning process.

Financial planning is the process of deciding how an organization can accomplish its
financial goals and objectives. It is divided into:
1. the long-term financial plan, also known as strategic financial plan and
2. the short-term financial plan, also known as the operating financial plan.

Table 1. Comparison of Short-term Planning & Long-term Planning

Importance of Financial Planning
1. Financial planning helps managers assess the impact of the strategy or actions
on their company’s financial position, cash flows, and earnings and if there is a need
for additional financing.
 2. It helps the company in the survival when uncertainties come along. Risks are
calculated and alternatives can be done. Through financial plans, the firm can adapt
to the changes happening in their environment.
3. It gives directions to the organization. Since plans are made, the firm can make
necessary actions.

Steps in Financial Planning Process

Figure 2. The Financial Planning Process

1. Set goals or objectives. The goals of a company can be divided into:
• short-term goals (1 year)
• mid-term goals (3-5 years)
• long-term goals (5-10 years or even longer)
Long-term goals set the company's direction. Short-term goals are the specific steps
or actions that will ultimately achieve the company's long-term goals. Vision
describes what a company wants to become and mission is how the company will
achieve its vision.
2. Identify the resources needed. Resources comprise production capacity, human
resources, and financial resources.

3. Identify a goal that is related to the tasks. The management must find out how
to achieve the goal. For example, if they want to increase sales, they can train their
sales agent to become more skilled in dealing with clients. They can also make sales
promotions as a marketing strategy.
4. Assign the task to an accountable and responsible individual or team and have
a timeline. After identifying the task to achieve the goal, the company must identify
who will be accountable for the activity. There should be a specific timeline for it.
5. Establish an evaluation system for monitoring and controlling. The
management must establish a process that allows them to supervise the plan. This
can be done by comparing the budgets and projecting financial statements with the
actual results.
6. Determine contingency plans. The management has alternative plans to
minimize the risk or bad effect to the company.
 A contingency plan is an alternative plan of an organization to respond efficiently to
a future event or situation that may or may not happen. Budgets and projected financial
statements are also considered in contingency planning.
BUSINESS FINANCE MODULE 2: THE FINANCIAL PLANNING TOOLS AND ONCEPTS

ASSESSMENT:
A. Directions. Answer the following questions on a separate sheet of paper.

Choose the correct order of the financial planning process from the options below. (6
points)
A. Assign the task to accountable and responsible individual or team and have a
timeline.
B. Establish an evaluation system for monitoring and controlling.
C. Determine contingency plans.
D. Set goals or objectives
E. Identify the resources needed.
F. Identify goals that are related to the tasks.

D, E, A, F, B, C D, E, C, F, A, B,

D, E, F, A, B, C D, E, B, C, A, F
B. Directions: Match column A with column B. Write your answers on a separate sheet of
paper.

COLUMN A COLUMN B
____1. It is about setting the goals of the organization and A. short-term goals
identifying ways on how to achieve them. B. vision
____2. It is the process of deciding how an organization can C. management
accomplish its financial goals and objectives. planning
____3. It describes what a company wants to become. D. midterm goals
____4. It describes how the company will achieve its goal. E. mission
F. planning
____5. It is a plan designed to take a possible future event or
G. long-term goals
circumstance into account.
H. financial planning
____6. These goals can be achieved in a year.
I. contingency plan
____7. These goals can be achieve between 1-3 years.
J. strategic plan
____8. These goals can be achieved in 5-10 years or even
longer.
____9. It provides road maps for guiding, coordinating, and
controlling the firm’s actions to achieve its objectives.

ADDITIONAL ACTIVITY:
Directions: List at least 10 things you want to achieve in your life or any plans that come
into your mind. Identify whether each is a short-term goal or a long-term goal.
Write your answers on a separate sheet of paper.
ACTIVITY MODULE 2
A. Directions: Write the letter of the correct answer on a separate sheet of paper.

_______1. It includes the vision, mission, and goals set by the top level of management.
A. tactical planning C. operational planning
B. strategic planning D. financial planning
_______2. It helps the company by translating the strategic plans into specific plans or
actions carried out by the middle level of management.
A. tactical planning C. operational planning
B. strategic planning D. financial planning
_______3. It involves day-to-day operations carried out by the
lower-level management.
A. tactical planning C. operational planning
B. strategic planning D. financial planning
_______4. It sets the company’s direction.
A. short-term goal C. mid-term goal
B. long-term goal D. none of the above
_______5. It describes what a company wants to become.
A. vision C. goal B. mission D. objective

B. Directions: Arrange the financial planning process in order using Roman Numerals (I, II,
III, IV, V, VI). Write your answers on a separate sheet of paper.

_______6. Assign the task to accountable and responsible individual or team

and have a timeline.
_______7. Identify the resources needed.
_______8. Identify goals that are related to the tasks.
_______9. Establish an evaluation system for monitoring and controlling.
_______10. Determine contingency plans.
_______11. Set goals or objectives.
BUSINESS FINANCE: MODULE 1- INTRODUCTION TO FINANCIAL
MANAGEMENT
Multiple Choice Questions
1. What is finance primarily concerned with?
a. Managing money and financial decisions
b. Understanding human behavior
c. Designing business strategies
d. Manufacturing goods
2. Why finance is considered both a science and an art?
a. Because it involves technology and creativity
b. Because it is a systematic knowledge and requires practical application
c. Because it focuses on scientific laws
d. Because it uses statistics
3. Which of the following is NOT included in the definition of finance?
a. Investing b. Saving c. Marketing d. Forecasting
4. Finance is typically divided into how many categories?
a. Two b. Three c. Four d. Five
5. Which of the following is an example of Private Finance?
a. Budgeting a country's expenditures
b. Managing a company’s finances
c. Planning personal retirement funds
d. Allocating funds for government projects
6. Public finance involves all of the following EXCEPT:
a. Public debt b. Public revenue c. Auditing d. Stock market analysis
7. What is the primary responsibility of the Board of Directors in a corporation?
a. Hiring and firing employees
 b. Overseeing the day-to-day operations
c. Setting policies on investments and dividend policies
d. Handling customer complaints
8. Who represents the company in professional and civic activities?
a. Shareholders b. Board of Directors c. Chief Executive Officer (CEO) d. VP for
Marketing
9. Which VP is responsible for identifying cost-effective production processes?
a. VP for Administration b. VP for Marketing c. VP for Finance d. VP for Production
10. A financial manager determines the company’s capital structure. This refers to:
a. Balancing marketing and administrative expenses
b. Deciding the ratio of debt to equity used to finance assets
c. Allocating funds to research and development
d. Setting dividend policies
11. Which of the following statements about equity financing is TRUE?
a. It increases the company’s debt load
b. It refers to money borrowed from banks
c. It involves funding from owners’ capital
d. It has higher financial risk compared to debt financing
12. What is the purpose of capital budgeting?
a. To set dividend policies b. To determine the feasibility of long-term investments
c. To allocate short-term operational funds d. To evaluate employee performance
13. In which situation is short-term investment preferred by a company?
a. When it has excess cash b. When expanding production facilities
c. When acquiring another company d. When building long-term profitability
14. Which of the following best implies concept of risk-return trade-off?
a. Lower risks guarantee higher returns b. Higher risks result in higher returns
c. Risks and returns are unrelated d. Financial managers should avoid all risks
15. What is required before a company can declare dividends?
a. Sufficient retained earnings and cash b. Approval from the VP for Production
c. High stock market performance d. Low debt levels
16. The responsibility of analyzing and evaluating marketing methods lies with:
a. VP for Finance b. VP for Marketing c. VP for Administration d. Board of Directors
17. A financial manager must evaluate whether to finance working capital using:
a. Equity only b. Long-term or short-term sources
c. Retained earnings only d. Marketing budgets
18. Which activity is primarily associated with operating decisions?
a. Managing long-term investments b. Declaring cash dividends
c. Financing accounts receivable and inventories d. Auditing financial reports

19. Public finance includes which of the following activities?

a. Personal savings and investments b. Determining fiscal policies
c. Corporate budgeting d. Evaluating production efficiency
20. The financial health of an organization is primarily ensured by:
a. Conducting frequent marketing surveys
b. Investment activities and long-term financing strategies
c. Creating innovative products
d. Increasing production capacity
MODULE 1 CONTINUATION
21. Which of the following is a type of depository institution?
a. Insurance companies b. Commercial banks c. Pension funds d. Mutual funds
22. What is the primary role of credit unions?
 a. To accept deposits from the general public
b. To lend money to union members
c. To provide life insurance policies
d. To issue treasury bonds
23. Saving and Loan Associations specialize in:
a. Providing insurance policies b. Offering retirement plans
c. Helping individuals secure residential mortgages d. Trading equity instruments
24. Non-depository institutions perform their functions primarily by:
a. Accepting monetary deposits b. Selling securities or insurance policies
c. Issuing credit cards d. Providing real estate loans
25. Which financial institution invests proceeds from insurance premiums?
a. Commercial banks b. Credit unions c. Insurance companies d. Mutual funds
26. What is a common characteristic of debt instruments?
a. Fixed returns due to fixed interest rates b. Varied returns based on company
performance
c. Ownership rights in a company d. Priority claims on company assets
27. What type of equity instrument provides priority claims over company assets?
a. Common stock b. Preferred stock c. Treasury bills d. Corporate bonds
28. The stock market allows investors to:
a. Purchase insurance policies b. Trade shares of public companies
c. Secure residential mortgages d. Buy natural resources like oil
29. Which market involves trading contracts based on asset values?
a. Stock market b. Commodities market c. Bond market d. Derivatives market
30. Pension funds are financial institutions that:
a. Accept deposits from small savers
b. Lend money to government entities
c. Receive payments from employees and invest on their behalf
d. Trade corporate bonds
MODULE 3: THE FINANCIAL PLANNING AND TOOLS

31. What is the primary purpose of financial planning?

a. To ensure profitability only
b. To set long-term and short-term financial goals
c. To avoid all financial risks
d. To comply with regulatory requirements
32. What are the two types of financial plans?
a. Strategic and tactical
b. Annual and operational
c. Long-term and short-term
d. Profit-based and cost-based
33. Why is financial planning important for a company?
a. It eliminates all uncertainties in the business environment
b. It ensures compliance with laws and regulations
c. It helps assess the impact of strategies on the company’s finances
d. It guarantees the success of all projects
34. What is a characteristic of long-term goals in financial planning?
a. They are specific steps to be achieved within a year
b. They describe the company’s short-term actions
c. They guide the overall direction of the company
d. They focus solely on maximizing short-term profits
35. In the financial planning process, what does identifying resources include?
a. Listing potential risks only
b. Determining production capacity, human resources, and finances
c. Creating detailed marketing plans
d. Evaluating competitors
36. What should a company do after assigning tasks in the financial planning process?
a. Identify additional resources
b. Set up a monitoring and controlling system
c. Develop a contingency plan
d. Create a new financial plan
37. Why are contingency plans included in financial planning?
a. To guarantee the success of the financial plan
b. To provide alternative solutions for potential risks
c. To increase profit margins
d. To establish stricter rules for employees
38. What is the relationship between vision and mission in financial planning?
a. Vision determines short-term objectives, and mission focuses on long-term goals
b. Vision describes the desired future, while mission defines how to achieve it
c. Vision is specific, and mission is general
d. Vision and mission are interchangeable terms
39. In the financial planning process, what is the purpose of setting up an evaluation system?
a. To identify new market opportunities
b. To ensure budgets align with actual results
c. To delegate tasks effectively
d. To avoid making contingency plans
40. Which of the following statements is correct about short-term planning?
a. It typically focuses on a time frame of 3-5 years
b. It deals with specific steps to achieve long-term goals
c. It replaces the need for long-term planning
d. It prioritizes the company’s vision over operational tasks
Answer Key

1. a
2. b
3. c
4. b
5. c
6. d
7. c
8. c
9. d
10. b
11. c
12. b
13. a
14. b
15. a
16. b
17. b
18. c
19. b
20. b
21. a
22. b
23. c
24. a
25. b
 26. a
27. d
28. c
29. b
30. A

31.b
32.c
33.c
34.c
35.b
36.b
37.b
38.b
39.b
40.b

Business Finance
Quarter 3 – Module 3:
Budget Preparation and
Projected Financial Statements
Budgeting

A budget is an estimate of costs, revenues, and resources over a specified period,

reflecting a reading of future financial conditions and goals. Sales budget, production
budget, operating budget and cash budget are the budgets that need to be prepared.

Sales Budget
• It provides the estimated amount of money based on the volume of products that a
company proposes to sell in the future.
• In forecasting the financial statements, the most important statement account is
sales because almost all of the accounts in the financial statements are affected by it.
Cost of sales and gross profit are examples of accounts that are affected by sales.
• Sales Revenue=Units to be sold x Unit Selling Price
• The finance manager must consider the internal and external factors in preparing
sales budget.

External Factors Internal Factors

• Gross Domestic Product • pricing promotional
(GDP) growth rate activities distribution
• income tax rates • production capacity
inflation interest rate management styles
•
foreign exchange rate • financial
•
developments in the capability/resources of
• industry competition the company reputation
•
• economic crisis
regulatory environment •
• political crisis
• •
•
•
 •

Table 1. Factors that Influence Sales

These external factors like interest rates, GDP, income tax rate, and inflation should be
considered to forecast sales. They can affect the sales of the company. Even a crisis should
be considered as the effect of Covid-19. Many companies closed down and many people lost
their jobs. As a result, the company's sales can be affected because the purchasing power of
the people decreases since they lost their job.
Internal factors should also be considered in preparing the sales budget. You cannot produce
thousands of units if you only have 3 production staff.

Example: The required production of ABC Corporation in the first quarter is 200,000
units. The units increased by 10% per quarter. The selling price per unit is Php 5.00.

ABC Corporation
Sales Budget
For the Year Ending December
31, 2020
QUARTER
1 2 3 4
200,000 220,000
240,000 260,000
5 5
5 5 Year
Units to be sold 1,000,000.00 1,100,000.00 1,300,000. 920,000
Unit Selling Price 1,200,000.00 00 5
(Php) Sales Revenue 4,600,000.0
(Php) Table 1. ABC Corporation Sales Budget 0

Production Budget
• It provides information with respect to the number of units that should be produced
over a given accounting period based on expected sales and targeted level of ending
inventories.
• Required Production in Units=Expected Sales + Target Ending Inventories-
Beginning Inventories

Example:
Determine the units to be produced by ABC Corporation in 2020.
 Quarter 1 Quarter 2 Quarter 3 Quarter 4
Projected Units 200,000 220,000 240,000 260,000
Target Level Ending 22,000 24,000 26,000 28,000
Inventories
The beginning inventory is 20,000 units.

ABC Corporation
Production Budget (In Units)
For the Year Ending December 31, 2022

QUARTER
1 2 3 4 Year
Projected Sales 200,000 220,000 260,000
240,000 920,000
Add:Target Level of Ending Inventories 22,000 24,000 26,000 28,000 28,000
Total 222,000 244,000 266,000 288,000 948,000
Less: Beginning Inventories 20,000 22,000 24,000 26,000 20,000
Required Production 202,000 222,000 242,000 262,000 928,000

Table 2. ABC Corporation Production Budget

In order to get the production units, add the target level of ending inventories and then
less the beginning inventories.
Note that the ending inventory of the first quarter (22,000) is the beginning inventory in
the second quarter. The same can be seen in the quarters that follow. However, the ending
inventory for the year is the same as the fourth quarter and the beginning inventory for the
year is the same as that of the first quarter.

Operating Budget
• It is made to estimate how much their revenue and expenses would be within a year. It
is composed of the variable and fixed costs needed to run the operations of the
business like wages and salaries of personnel, tax payments, interest payments, and
rent payments.

Cash Budget
• It displays the expected cash receipts and disbursements for an accounting period. It is
prepared on a monthly or quarterly basis for a year.
• The cash budget is divided into three parts: cash receipts, cash disbursements, excess
cash balance, or required total financing.

Parts of the cash budget are as follows:

1. Cash receipts- These compose of collections from receivables, proceeds from loans,
issuance of new shares of stocks, and advances from the stockholders.
 2. Cash disbursements- These include payments to suppliers and other service
providers, loans, and cash dividends.
3. Excess cash balance or required total financing- This part of the cash budget
shows possible funding requirements. If the company has excess cash, it is a good
indicator that it can pay an existing loan or put it in an investment. If there is no
excess cash, the company must make a plan where to get funds.

Example: The president of ABC Corporation wants to find out if the company has enough
cash to pay the company’s loan worth Php 300,000.00 by the end of 2020.

a. The projected quarterly sales for the year 2020 are as follows:
Quarter 1 Quarter 2 Quarter 3 Quarter 4
1,010,000 1,110,000 1,210,000 1,310,000
The fourth quarter sales in 2019 were Php 900,000.00. Eightyfive percent (85%) of the
sales are collected in the Quarter 1 of the sales . The remaining fifteen percent (15%) is
collected in the following quarter.

b. Assume that the operating expenses for each quarter are as follows:
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Php 101,000.00 Php 111,000.00 Php 121,000.00 Php 131,000.00

c. Cost of sales is 75% of sales.

d. Interest expenses paid every quarter is Php 15,000.00.
e. Income tax rate is 30%.
These are the income taxes to be paid every quarter.

Quarter 1 Quarter 2 Quarter 3 Quarter 4

Php 30,000.00 Php 45,000.00 Php 50,000.00 Php 55,000.00

f. Expected cash balance at the end of 2019 is about Php 40,000.00. For 2020, target cash is
raised to Php 100,000.00 because of expected increase in sales.

ABC Corporation Cash

Budget For the Year Ending
December 2020

Q1 Q2 Q3 Q4
Cash Receipts Php 993,500.00 Php 1,095,000.00 Php Php 1,295,000.00
1,195,000.00
Less: Cash 903,500.00 1,003,500.00 1,483,500.00
Disbursements 1,093,500.00
Net Cash Flow 90,000.00 91,500.00 - 188,500. 00
101,500.00
Add: Beginning Cash 40,000.00 130,000.00 221,500.00
323,000.00
Ending Cash Balance 130,000 221,500.00 323,000.00 134,500.00
Less: Minimum Cash 100,000.00 100,000.00 100,000.00 -
Balance Php 30,000.00 Php 121,500.00 Php 223,000.00 100,000.00
Excess Cash Balance Php
34,500.00
 Table 3. ABC Corporation Cash Budget

To compute for the cash budget, follow these steps:

1. Compute for the cash receipts. Identify how much will be collected from the sales.
a. Multiply the projected sales per quarter by the percentages of sales collection.
b. Multiply the projected sales per quarter by the remaining percentages of sales
collection. Use the last quarter sales of last year for the first quarter. Then use
Quarter 1 to Quarter 3 sales for year 2020.
c. Add the Quarter of Sale and the Quarter after Sale.

Q1 Q2 Q3 Q4
Quarter of Sale Php 1,010,000.00 Php 1,110,000.00 Php 1,210,000.00 Php 1,310,000.00 x 85% x 85% x 85% x
85%

Php 858,500.00 Php 943,500.00 Php 1,028,500 Php

1,113,500.0
0
Quarter Php
after Php 900,000.00 x Php 1,110,000.00 x Php 1,210,000.00 x 1,310,000.00
Sale 15% 15% 15% x 15%

Php 135,000.00 Php 151,500.00 Php 166,500 Php 181,500.00

Cash Receipts Php 993,500.00 Php 1,095,000.00 Php 1, 195,000.00 Php 1, 295,000.00 Table 4.
Computation of Cash Receipts

2. Compute for the cash disbursements. Identify all the payments to be made and add all
expenses.

Q1 Q2 Q3 Q4
Cost of Sales Php 1,010,000.00 Php 1,110,000.00 Php 1,210,000.00 Php
1,310,000.00

x 75% x 75% x 75% x 75%

 757,50 832,500.00 907,500,00 982,500.00
0
Add: Cash Operating 101,000.0 111,000.00 121,000 131,000
Expense 0
Income Taxes 30,000.0 45,000.00 50,000.00 55,000.00
0
Interest Expense 15,000.0 15,000.00 15,000.00 15,000.00
0
Loan 300,000.00
Cash Disbursements Php 903, 500.00 Php 1,003,500.00Php 1,093,500.00 Php
1,483,500

Table 5. Computation of Cash Disbursement

3. Subtract the cash disbursement from the cash receipts to get the net cash flow.

4. Add the beginning cash balance and then subtract the minimum cash balance. If the
minimum cash balance is less than the ending cash balance, the firm has excess cash.
If the minimum cash balance is greater than the ending cash balance, the firm requires
financing.

What’s In: Activity 1:

Directions: Before we continue our lessons, let us have a review by having these exercises.
Write the answers on the separate sheet of paper.

1. Prepare the production budget of Emir’s Corporation for 2021. Given below are the
pieces of information needed to prepare a production budget.
Quarter 1 Quarter 2 Quarter Quarter
3 4
Projected Units 400,000 450,000 500,000 600,000
Target Level Ending 30,000 33,000 35,000 40,000
Inventories
The beginning inventory is 32,000 units.
 2. The president of Emir’s Corporation wanted to find out if the company has enough cash
to pay the company’s loan worth Php 600,000.00 by the end of 2020.
a. The projected quarterly sales for the year 2020 are as follows:
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Php 1,200,000.00 Php Php 1,600,000.00 Php 1,800,000.00
1,400,000.00
The fourth quarter sales in 2019 was Php 1,000,000.00. Ninety percent (90%) of the
sales were collected in the quarter they were made. The remaining ten percent (10%) was
collected in the following quarter.
b. Assume that the operating expenses for each quarter are as follows:
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Php 125,000.00 Php 150,000.00 Php 175,000.00 Php 200,000.00
c. Cost of sales is 75% of sales.
d. Interest expenses paid every quarter is Php 18,000.00.
e. Income tax rate is 30%. The income taxes to be paid every quarter will be:
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Php 35,000.00 Php 45,000.00 Php 55,000.00 Php 65,000.00
f. Expected cash balance at the end of 2020 is about Php 80,000.00. For 2021, target cash is
raised to Php 150,000.00 because of expected increase in sales.

What’s New Activity 2:

Prepare the 2021 cash budget of Emir’s Corporation. Find out if they have enough cash
to pay the Php 600,000.00 loan in the last quarter.
Projected Financial Statement
The projected financial statement is important in planning to forecast the outcome of
the organization in future periods, assess the standing of the business, and budget
preparation. It will help in evaluating the additional assets/funds needed in the business. It
will also serve as a basis for the business if it can pay its financial obligations.

The following are the steps to be followed in projecting financial statements:

Forecast the Statement of Comprehensive Income (Income Statement).

• Forecast sales.
• Forecast cost of sales and operating expenses.
To get the cost of sales, use the average cost of sales over the historical
data analyzed.
Find out which are variable expenses and fixed expenses.
• Forecast net income and retained earnings.
(There should be information on income taxes and how much financing
cost a company will have to forecast net income.)

Forecast the Statement of Financial Position and Statement of Cash Flows.

• Determine SFP accounts that will be affected or associated with sales.
(Cash, AR, inventories, AP, and accrued expenses payable)
• Determine the external funds needed. The projected statement of
financial position has to be balanced so EFN is computed.
 EFN=Change in Total Assets-(Change in Total Liabilities
+ Total Change in Stockholder’s Equity) + EFN, means that the
company needs more funds - EFN, means that the company has excess cash.
Find out how to finance EFN.
• After computing the EFN, the management must determine how to
finance the company. They can raise the funds through debt (borrowing
from the bank as notes payable) or equity (through stocks and bonds) or
it can be the combination of the instruments.
What Is It
To further understand the lesson, let us have an example.

Example: The president of ABCD Company asked the finance manager to prepare the
projected financial statements of the company. The accounts needed are shown below.
ABCD Company
Projected Statement of Comprehensive Income For the Year
Ending December 31, 2019

Net Sales Php 54,705,675.00

Cost of Sales 41,954,730.00 Gross Profit 12,750,945.00
Operating Expenses 8,958,213.00 Operating Income
3,792,732.00 Interest Expense 250,000.00 Income before
Taxes 3,542,732.00
Taxes 1,062,820.00
Net Income Php 2,479,912.00

Financial Accounts in 2019 Amount

Cash Php 2,000,000.00
Receivables 2,800,500.00
Inventories 5,140,213.00
Other Current Assets 1,500,000.00
PPE 12,400,000.00
Other Noncurrent Assets 900,500.00
Trades Payable 5,550,000.00
Current portion of Long-term Debt 2,000,000.00
Long-term debt, Net of Current 2,000,000.00
P i 5,043,216.00
Retained Earnings
Other Current Liabilities 90,000.00
Capital Stock 9,000,000.00
Total Assets 23,840,713.00
Total Liabilities 10,519,207.00
Total Stockholder’ Equity Php 13,321,506.00
a. Sales are expected to increase by 10% in 2020 from the 2019 sales level. The sales of
the company increased by 10% annually from 2015 to 2019.
b. The cost of sales, cash, receivables, inventories, other current assets, and trade
payable are expected to change with sales based on the financial statements in 2019.
The variable operating expense is 8% of sales. The depreciation expense is 10% of the
gross beginning balance of property,
plant, and equipment. The gross balance of PPE was Php 30,000,000.00 (December
31, 2019). The new PPE for 2020 is Php 6,000,000.00. The PPE acquired in the first
half of the year will depreciate for one full year.
c. There are two-long term loans as of December 31, 2019. Both have an annual interest
rate of 10%. The first loan will mature on June 30, 2020. Thus, the loan amounting to
Php 1,250,000.00 has to be paid on or before June 30, 2020. The second loan
amounting to Php 3,000,000.00 which was incurred on December 31, 2019, is paid at
the rate of Php 500,000.00 principal balance every June 30 and December 31. New
loans of Php 3,000,000.00 will be incurred on December 31, 2020, payable at the rate
of Php 500,000.00 every June 30 and December 31. Annual interest rate is expected at
10%.
d. The income tax rate is 30%. 75% of the income tax payable will be paid in 2020 while
the balance will be paid in 2021.
e. Other noncurrent assets and other current liabilities will remain unchanged.
f. Cash dividends of Php 2,000,000.00 will be paid in 2020.
g. Assume that the current portion of long-term debt amounts to Php 2,000,000.00 and
the net of long-term debt amounts to
Php 3,500,000.00 for the year 2020.
Solution:
ABCD Company
Projected Statement of Comprehensive Income For the Year
Ending December 31, 2020

Net Sales Php 60,176,243.00

Cost of Sales 46,150,203.00

Gross Profit 14,026,040.00

Operating Expenses 8,414,099.00

Operating Income 5,611,941.00

Interest Expense 168,750.00

Income before Taxes 5,443,191.00

Taxes 1,632,957.00

Net Income Php 3,810,234.00

Computation:
Projected Net Sales in 2020
= Net Sales in 2019 x (1+Expected increase in Sales Percentage)
= Php 54,705, 675 x 1.10
= Php 60,176,243.00

Projected Cost of Sales in 2020

x Net Sales in 2020

x Php 60, 176, 243.00

= Php 46,150,203.00

Operating Expenses in 2020

Variable ( % * NS 2020) Php 4,814,099.00

Add: Fixed (Php 30,000,000.00 + Php 6,000,000.00)
(Depreciation Expense) x .10
=Php 3,600,000.00
Total Operating Expenses Php 8,414,099.00

Taxes
= Income Before Tax in 2020 x 30%
= Php 5,443,191 x 30%
= Php 1,623,597.00
 ABCD Company
Projected Statement of Financial Position
For the Year Ending December 31, 2020

Assets
Current Assets
Cash Php 2,200,000.00
Receivables 3,080,000.00
Inventories 5,654,234.00
Other Current Assets 1,650,000.00
Total Current Assets 12,584,234.00
Noncurrent Assets
Property, Plant, and Equipment, Net 14,800,000.00
Other Noncurrent Assets 900,500.00
Total Noncurrent Assets 15,700,500.00
Total Assets Php
28,284,734.00
Liabilities and Equity
Current Liabilities
Notes Payable (External Funds Needed) -3,346,709.00
Trade Payables 6,105,000.00
Income Taxes Payable 4,082,993.00
Current Portion of Long-term Debt 2,000,000.00
Other Current Liabilities 90,000.00
Total Current Liabilities 8,931,284.00
Noncurrent Liabilities
Long-term Debt, Net of Current 3,500,000.00
Total liabilities 12,431,284.00
Stockholders’ Equity
Capital Stock 9,000,000.00
Retained Earnings 6,853,450.00
Total Stockholders’ Equity 15,853,450.00
Total Liabilities and Stockholders’ Equity Php
28,284,734.00

Computation:
Projected Cash in 2020
 x Net Sales in 2020

x Php 60, 176, 243.00

= Php 2,200,000.00

Projected Accounts Receivable in 2020

x Net Sales in 2020

x Php 60,176,243
= Php 3,080,000.00
Projected Inventories in 2020

x Net Sales in 2020

x Php 60,176,243.00

= Php 5,654,234.00

Projected Other Current Assets in 2020

x Net Sales in 2020

x Php 60,176,243.00

= Php 1,650,000.00

Projected Trades Payable in 2020

x Net Sales in 2020

x Php 60,176,243.00

= Php 6,105,000.00

Property Plant and Equipment

= (PPE in 2019 + new PPE acquisition in 2020)- [(gross balance in 2020
+ new PPE acquisition in 2020) x Percentage Depreciation Expense in 2020
= (Php 12,400,000.00 + Php 6,000,000.00) – [(Php 30,000,000+6,000,000.00)] x .10
= Php 18,400,000.00 –Php 3,600,000.00
= Php 14,800,000.00

Projected Income Tax Payable 2020 x 75%

= Php 5,443,191.00 x .75
= Php 4,082,993.00

Projected Retained Earnings in 2020

= (Retained Earnings 2019+Net Income 2020)- Cash Dividends
= (Php 5,043,216.00 + Php 3,810,234.00) – Php 2,000,000.00
= Php 6,853,450.00

Current Portion of Long-term Debt and Long-term Debt

Loan Current Portion Long-term Total

Php 3,000,000.00 Php 1,000,000.00 Php 1,000,000.00 2,000.000.00
Php 3,500,000.00 Php 1,000,000.00 Php 2,500,000.00 3,500,000.00
Total Php 2,000,000.00 Php 3,500,000.00 5, 500,000.00

EFN
= Change in Total Assets - (Change in Total Liabilities + Total Change in Stockholder’s
Equity)
= Php 4, 444, 021.00 – (Php 5,258,786.00+ Php 2,531,944.00)
= Php 4, 444, 021.00 – Php 7,790,730.00
= - Php 3,345,709.00
2020 2019 Change
Total Assets Php 28,284,734.00 Php 23,840,713.00 Php 4,444,021.00
Total Lia Php 15777993.00 Php 10,519,207.00 Php 5,258,786.00
Total S.E. Php 15853450.00 Php 13,321,506.00 Php 2,531,944.00

ABCD Corporation
Projected Statement of Cash Flow
For the Year Ending December 31, 2020

Cash Flows from Operating Activities

Income before Taxes Php 5,443,191.00
Adjustments:
Depreciation 3,600,000.00
Changes in the following accounts:
Decrease (increase) in Accounts Receivable - 279,500.00
Decrease (increase) in Inventories - 514,021.00
Decrease (increase) in Other Current Assets - 150,000.00
Increase (decrease) in Accounts Payable - 555,000.00
Increase (decrease) in Other Current Liabilities -

Cash Flows from Operating Activities 7,544,670.00

Cash Flows from Investing Activities

 Acquisition of Property, Plant and Equipment 6,000,000.00
Acquisition of Other Noncurrent Assets

Cash Flows from Investing Activities 6,000,000.00

Cash Flows from Financing Activities

Payment of Cash Dividends 2,000,000.00
Short-term Notes Payable (EFN)
Loans, Net Payment 1,500,000.00
Cash Flows from Financing Activities 500,000.00
Net Change in Cash 1,044,670.00
Cash, Beginning 2,000,000.00

Cash, Ending Php 3,044,670.00

Formula:
Changes in Accounts = Accounts in 2019 – Accounts in 2020

Example:

Changes in Accounts Receivable =

Accounts Receivable in 2019 – Accounts Receivable in 2020

= Php 2,800,500.00 – Php 3,080, 000.00
= Php 588,000.00

What’s More

Directions: Read and analyze the situation. Write your answers on a separate sheet of paper.

The statement of financial position and statement of comprehensive income for the
year ending December 31, 2019 are shown below. Find out if the company will have excess
cash or need additional funds. Prepare the projected financial statements (Projected
Statement of Financial Position, Projected Statement of Comprehensive Income and Projected
Statement of Cash Flows).

Elijah's Corporation
Statement of Financial Position
For the Year Ending December 31, 2019

Assets
Current Assets
Cash Php 2,400,000.00
Receivables 3,100,000.00
Inventories 6,000,000.00
Other Current Assets 1,600,000.00

Total Current Assets 13,100,000.00

Non-current assets
Property, Plant, and Equipment, Net 15,500,000.00
Other Noncurrent Assets 1,500,000.00
Total Noncurrent Assets 17,000,000.00
Total Assets Php 30,100,000.00
Liabilities and Equity
Current Liabilities
Trade Payables 6,500,000.00
Income Taxes Payable 4,500,000.00
Current Portion f Long-term Debt 2,000,000.00
Other Current Liabilities 100,000.00

Total Current Liabilities 13,100,000.00

Noncurrent Liabilities
Long-Term Debt, Net of Current 3,500,000.00

Total Liabilities 16,600,000.00

Stockholders’ Equity
Capital Stock 6,000,000.00
Retained Earnings 7,500,000.00
Total Stockholders’ Equity 13,500,000.00

Total Liabilities and Stockholders’ Equity Php 30,100,000.00

Elijah's Corporation
Statement of Comprehensive Income
For the Year Ending December 31, 2019

Net Sales Php 50,000,000.00

Cost of Sales 38,000,000.00

Gross Profit 12,000,000.00

Operating Expenses 7,500,000.00

Operating Income 4,500,000.00

Interest Expense 250,000.00

Income before Taxes 4,250,000.00

Taxes 1,275,000.00

Net Income Php 2,975,000.00

a. Sales are expected to increase by 10% in 2020 from the 2019 sales level. The
sales of the company increased by 10% annually from 2015 to 2019.
b. The cost of sales, cash, receivable, inventories, other current assets, and trade
payable are expected to change with sales based on the financial statements in
 2019. The variable operating expenses is 9% of sales. The depreciation expense
is 10% of the gross beginning balance of property, plant, and equipment. The
gross balance of PPE was Php 32,000,000.00 (December 31, 2019). The new PPE
for 2020 is Php 5,000,000.00. The PPE acquired in the first half of the year will
depreciate for one full year.
c. There are two-long term loans as of December 31, 2019. Both have an annual
interest rate of 10%. The first loan will mature on June 30, 2020. Thus, the loan
amounting to Php 1,250,000.00 has to be paid on or before June 30, 2020. The
second loan amounting to Php 3,000,000.00 which was incurred on December
31, 2019 is paid at the rate of Php 1,000,000.00 principal balance every
December 31. New loans of Php 3,000,000 will be incurred on December 31,
2020 payable at the rate of Php 1,000,000.00 every December 31. Annual
interest rate is expected at 8%
d. The income tax rate is 30%. Seventy-five percent (75%) of the income tax
payable will be paid in 2020 while the balance will be paid in 2021.
e. Other noncurrent assets and other current liabilities will remain unchanged.
f. Cash dividends of Php 3,000,000.00 will be paid in 2020.

What I Have Learned

Directions: Answer the following questions in one (1) to two (2) sentences. Write your answers

on a separate sheet of paper. In this lesson,

I learned that:

____________________________________________________________________________

____________________________________________________________________________

I did that:

____________________________________________________________________________
____________________________________________________________________________

I realized that:

____________________________________________________________________________
____________________________________________________________________________

Scoring Rubrics:
 5 points The answer is well-written, organized and the idea is very relevant
to the question and has no grammatical or spelling errors.
4 points The answer is fairly written, and the idea is almost relevant to the
question and has one grammatical or spelling error.
3 points The answer is somewhat relevant to the questions and has two to
three grammatical or spelling errors.
2 points The answer is unclear and has four grammatical or
spelling errors.
1 point The answer does not address the question and has more than five
grammatical or spelling errors.

What I Can Do

Directions: Answer the question below in three (3) to five (5) sentences. Write your answers
on a separate sheet of paper.

If you were the owner of the company, what would you do if the actual performance of
the company did not meet the plans that have been made?

____________________________________________________________________________
____________________________________________________________________________

Scoring Rubrics:

5 points The answer is well-written, organized and the idea is very relevant
to the question and has no grammatical or spelling errors.
4 points The answer is fairly written, and the idea is almost relevant to the
question and has one grammatical or spelling error.
3 points The answer is somewhat relevant to the questions and has two to
three grammatical or spelling errors.
2 points The answer is unclear and has four grammatical or
spelling errors.
1 point The answer does not address the question and has more than five
grammatical or spelling errors.

Assessment
Directions: Match Column A with Column B. Write your answers on a separate sheet
of paper. L. Production budget M.
Required production
COLUMN A
____1. These include payments to suppliers and other
service providers, loans, and cash dividends.
____2. It provides the estimated amount of money based on
the volume of products that a company
proposes to sell in a future
period.
____3. It is composed of collections from receivables,
proceeds from loans, issuance of new shares of
stocks, and advances from the stockholders.
____4. It is the amount of cash that the firm needs to
maintain at all times at its present level of
operations, cash flows stability, and the political
and macro-economic conditions.
____5. It means that the company has
excess cash.
____6. It means that the company needs additional funds.
____7. It displays the expected cash receipts and
disbursements for an accounting period.
____8. It is composed of the variable and fixed costs
needed to run the operations of the business.
____9. It provides information about the number of units
that should be produced over a given accounting
period based on expected sales and
targeted level of ending inventories.
____10. It is the formula used by adding expected sales and
target ending inventories and then deducted
to the beginning inventories.
____11. It is the formula used by multiplying the number of
units sold by the unit selling price.
____12. It is an estimate of costs, revenues, and resources
over a specified period, reflecting a reading of
future financial conditions and goals.
COLUMN B
A. Sales revenue
B. Cash budget C. + EFN
D. Sales budget
E. Cash receipts
F. Operating budget G. Cash disbursement
H. Target cash balance
I. Net cash flow
J. – EFN
K. Budget
II. Directions: Listed below are the steps in projecting financial statements. Arrange them in
order. Write your answers on a separate sheet of paper.

______ 13. Forecast the statement of financial position and cash flows.
______ 14. Find out how to finance the external funds needed.
______ 15. Forecast the statement of comprehensive income.

Additional Activities

Directions: Analyze the information given and do what is required. Write your answers on a
separate sheet of paper.

Given below is the information to prepare the budgets needed by the president of
Matiyaga Company.

Quarter 1 Quarter 2 Quarter 3 Quarter 4

Projected units 750, 000 825, 000 850, 000 900, 000
Target level ending 50, 000 55, 000 60, 000 65, 000
inventories

The unit selling price is Php 25.00.

The beginning inventory is 32,000 units.

Requirements: Prepare the Sales and Production Budget for Matiyaga Company for the year
2020.
Answer Key

What’s More

2.

False 15.
False 14.
True 13.
True 12.
True 11.
False 10.
1.
True 9.
What’s More True 8.
False 7.
True 6.
True 5.
False 4.
False 3.
False 2.
True 1.

What’s In What I Know

The answer
nt. will depend on the stude The answer will depend on the student.

What I Can Do I Have Learned What

What’s More

3 15.
1 14.
2 13.
K 12.
A 11.
M 10.
L 9.
F 8.
I 7.
C 6.
J 5.
H 4.
E 3.
D 2.
G 1.

Additional Activities Assessment