BUS5IAF - INTRODUCTION TO ACCOUNTING AND FINANCE

PART 2: PREPARING THE FINANCIAL STATEMENTS

Thank you for submitting your advice regarding sources of finance.Your client has carefully considered your advice in setting up the new business.As you will see below, the client may have acted on all, some or none of your advice.That is the nature of being a consultant.Nevertheless, the client is happy with the advice you offered and seeks further assistance from you.

As the client looked further into the feasibility of the new business, it soon became clear that there was much more demand than previously realised, and immediate plans were made to increase the size of the operation.This meant raising significant amounts of capital, and it was felt that this would be difficult as a private company.It was therefore decided to set up a public company.

New Business Name: Zhiyi Enterprises Ltd

The new business commenced operations on 31 December 2018.It is now just over one year later - the middle of January 2020.Your client has asked you for assistance in preparing financial statements.

Your task: Prepare the following financial statements, based on the information below.

1.Balance Sheet as at 31 December 2018.

2.Profit and Loss Statement for the year ending 31 December 2019.

3.Balance Sheet as at 31 December 2019.

4.Statement of Cash Flows for the year ending 31 December 2019.

Before viewing the financial information below, we need to test how your Excel program has been configured, and if necessary make an allowance for this.This is ensure that the information can be read by all students.

Consider the number in the box below.

1,234.56 If the number in the box appears to you as 1,234.56, this file is compatible with the way your computer has been set up.Continue with the financial information below.

If the number appears as anything other than 1,234.56, enter X in this box.

This should make the number appear correctly, if it still doesn't look right, please email the subject coordinator, attaching a screenshot of this page.

If you enter X in the box and it makes the above number look right, in some of the remaining parts of this Assignment you may be offered another green box, and if you use the same computer, you will probably have to keep entering X to make the numbers look right.

Financial Information: The company was initially set up by issuing 200,000 shares at an issue price of $1 each.

A factory was purchased at a cost of $530,000.

The new factory was largely financed by taking out a $477,000 mortgage loan.

In addition to the mortgage loan, the company took out a $546,000 interest-only unsecured bank loan.

In addition to the factory, the company purchased the following:

Plant and Equipment to the value of $270,000.

Furniture, Fixtures and Fittings to the value of $100,000.

Inventory to the value of $190,000.

All of the above transactions occurred late in December 2018.

Any cash remaining after these purchases was put into a bank account.

On 1 March 2019, the company took out a bank overdraft.The outstanding balance on 31 December 2019 was $32,000. (This is to be recorded separately from the cash balance rather than combined.)

On 1 July 2019, motor vehicles to the value of $100,000 were purchased.

On 31 December 2019, the company issued corporate bonds to the value of $690,000, and used the proceeds to purchase an additional factory costing $690,000.

On 31 December 2019, the company issued 116,000 new ordinary shares at a price of $2 each and 214,000 new preference shares at a price of $1 each.Some of the amount raised was used to buy additional plant and equipment for the new factory at a cost of $250,000.

During the course of the year ending 31 December 2019, the following transactions occurred:

Products to the value of $1,932,000 were sold and delivered.These sales were made on the basis of one month's credit.Of the $1,932,000 in sales occurring in 2019, products to the value of $193,000 were delivered in December 2019 and will not be paid for until January 2020.

Raw materials to the value of $1,024,000 were ordered and taken delivery of.These purchases were made on the basis of one month's credit.Of the $1,024,000 in raw materials purchased in2019, raw materials to the value of $110,000 were ordered and taken delivery of in December 2019 and will not be paid for until January 2020.

Payment of Wages ($168,000).

Payment of Rent for 2019 ($90,000).

Payment of Motor Vehicle Running Expenses ($42,000).

Payment of Insurance for 2019 ($42,000).

Payment of Interest ($61,000).

Payment for Printing & Stationery ($22,000).

Payment for Heating and Lighting for 2019 ($20,000).

Payment forTelephone, Postage and Internet Charges ($17,000).

In addiition, an additional $52,000 was paid in December for January's rent.

In addition to the above interest payment, the principal owing on the mortgage loan was reduced by $30,000.

Additional Information: The value of inventory on 31 December 2019 was $211,000.

Depreciation on motor vehicles, plant and equipment and furniture, fixtures and fittings is calculated on a straight-line basis at the rate of 10% per year.Land and Buildings is not depreciated.

The company faces a tax rate of 25%.The company's Dividend Payout Ratio is 70%.