Basics of financial modelling CAPEX and Asset Schedule

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Asset Schedule Part 2

We will examine the asset schedule.

  • What is the Base rule?

Before constructing our schedules, let’s make sure we have a good grasp of the base rule. You’re likely already aware of it, but I might as well elucidate it now. Let’s take an example.

Electric vehicles have grown in popularity and Ola has set out to take advantage of this by developing and selling electric bikes. This is sure to create a stir in the industry.

Ola created 4000 electric bikes during their first year of functioning. Here are a few constructed facts –

  • Number of bikes manufactured in 1st-year operations = 4000
  • The total of bikes that have been sold is 3750.
  • 250 bikes remain unsold.

To begin, the opening balance for Ola’s first year of operation was zero. This was followed by the total number of bikes that were purchased throughout the year. Lastly, it ended with a closing balance, which is an assessment of any remaining unsold bikes at the end of the year.

The total number of bikes is 4000, since the opening balance is at a tally of zero. This amount comprises all the bikes that were produced.

At the end of the year, we can calculate how many bicycles were not sold. This figure is known as the closing balance.

Let us suppose that Ola produces and distributes the same amount of bicycles in the second year.

Can you share what the commencement, quantity and ending numbers were for the 2nd year?

In this particular case, the opening balance for Year 2 is 250, which is the same as the closing balance of Year 1.

They produce 4000 new bikes, bringing their total to 4250. Of these, 3750 have already been sold – leaving a balance of 500 at the end of the year.

The opening balance for Year 3 is based on the closing balance of the previous year, and this applies every year.

The ‘Base rule’ of linking the closing and opening balance is a technique that’s often used in the schedules we build, particularly in the asset schedule. For now, just remember this base rule – we’ll be referencing it soon.

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