DE LA SALLE PROFESSIONAL SCHOOLS

Ramon V. Del Rosario Sr. Graduate School of Business

SELECT BOUTIQUE SHOP

A Case Analysis

Submitted To:

Prof. Daniel R. Cruz

In Partial Fulfillment
of the
Requirements in

Financial Accounting
ACC 5000

Submitted By:
Zoe Filipinas C. Mendiola
Vina Velsaco
Rachel Lim
Nadia Lanot
Marvin Lee

Group 3

June 13, 2008

Case Analysis: Select Boutique Shop June 13, 2008

Group 3 ACC5000 KRA 1st Term SY 2008 Prof. Daniel R. Cruz

I. Statement of the Problem

How well did Select Boutique Shop do during its first nine months of operations?

Objectives:

a. To record the operations of Select Boutique Shop using the accounting equation.
b. To prepare the corresponding financial statements of Select Boutique Shop.
c. To evaluate the productivity of Select Boutique Shop’s operations during the first nine
months of its existence.
d. To offer recommendations as to how Select Boutique Shop can improve their operations.

II. Analysis of the Case

A. The Accounting Equation (000 omitted)

(see separate sheet)

B. Income Statement

Select Boutique Shop

Income Statement
as of December 31, 2004

Sales 1,160,000
Less: Cost of Goods Sold 580,000
Gross Profit 580,000

Less: Expenses
Operating Expense 189,000
Rent Expense 270,000
Depreciation Expense 90,000 549,000
Operating Income 31,000

Less: Interest Expense 1,000

Net Profit 30,000

Case Analysis: Select Boutique Shop June 13, 2008

Group 3 ACC5000 KRA 1st Term SY 2008 Prof. Daniel R. Cruz

 C. Balance Sheet

Select Boutique Shop

Balance Sheet
December 31, 2004

LIABILITIES AND STOCKHOLDER'S

ASSETS EQUITY
Current Assets Current Liabilities
Cash 91,000 Accounts Payable 10,000
Accounts Receivable 560,000 Notes Payable 10,000
Prepaid Rent 30,000 Interest Payable 1,000
Rental Deposit 90,000 Rent Payable 30,000
Total Current
Merchandise Inventory 20,000
Liabilities 51,000
Total Current Assets 791,000
Stockholder's Equity
Non-Current Assets AA Capital 390,000
Equipment and Furniture 500,000 BB Capital 370,000
Less: Accumulated
90,000
Depreciation CC Capital 390,000
Total Non-Current Assets 410,000 1,150,000

1,201,00 1,201,00
Total Assets 0 Total Equity 0

C. Financial Ratio

Return on Investment (Net Profit to Average Capital) to measure over-all performance

Net Profit 30,000
= = 2.50%
Average Capital 1,200,000

III. Conclusion

Select Boutique Shop earned Php 30,000 in 9 months, this is also the average operational
expense of the boutique in 1 month. Its ROI is only 2.50%, a rate a little higher than the market
investment rate. It is also wise to consider the tax and salary expenses for the past 9 years. The
2 major expenses were not considered above. If these will be considered, the store may already
incur net loss.

IV. Recommendation

The goods were sold even at average mark-up price of 100% of the actual price. The boutique
may maintain this price for a longer period of time to capture its own market. The business
can maximize its profit further by cutting down operational expenses or implementing cost-
saving measures. Initially, the store can look for a place with lower rental fee within the area.
The large amount of Accounts Receivable should also be looked into. They should implement

Case Analysis: Select Boutique Shop June 13, 2008

Group 3 ACC5000 KRA 1st Term SY 2008 Prof. Daniel R. Cruz

 strict payment terms to tighten collection and convert receivables into cash to become more
liquid. Also, Owners should refrain from personal withdrawals while business is still at its
development stage.

Case Analysis: Select Boutique Shop June 13, 2008

Group 3 ACC5000 KRA 1st Term SY 2008 Prof. Daniel R. Cruz