NOTES FROM DISCUSSIONS WITH MRS. ATKINSON AND THE RECEPTIONIST 1. STALL RENTAL (BOARDING) REVENUE - Saddle-Up has 26 stalls on site for horses with 18 stalls being occupied by horses belonging to Saddle-Up. The other 8 are rented out to individuals who own horses and need a place to board them. Anyone wishing to board their horse must sign a 24-month contract and pay an initial fee of $1500. This fee is non-refundable and is recorded as revenue when received. In addition, there is a monthly boarding fee of $450 which includes all food and care, as well as the stall rental. The contract continues on a month-to-month basis. After 12 months the rate increases to $850 per month. All of the existing boarders have been customers with Saddle-Up for greater than 12 months. RIDING REVENUE - Saddle-Up makes each of its 18 horses available to its clients for one three-hour riding session per day, at a cost of $95 per session. To maintain the horses' health, Saddle- Up's policy is that a horse should not be ridden for more than three hours per day. Ginny noted that some horses seemed tired and that one had definitely been ridden for more than three hours that day. She checked the schedule and only one three-hour session had been scheduled for that horse. 3. FREQUENT RIDER REVENUE - Saddle-Up matches the 8 boarded horses with frequent riders, allowing the horses' owners to offset the cost of boarding their horses through riding revenue. Frequent riders pay $1100 per month per horse. They receive daily riding access to one horse for a maximum of three hours per day. Saddle-Up keeps $100 of this amount as a service fee and remits the remaining $1000 to the boarded horse's owner. Saddle-Up pays the boarders' share immediately. Fees are kept in the company safe overnight if required. 4. RIDING LESSONS - Lessons are not revenue for Saddle-Up as instructors provide them directly to riders. Lesson fees are paid to Saddle- Go to other worksheet Up's office and are handed over to the instructors within 24 hours. Cash is kept in the company safe overnight if required. Intro Ex I Ex III Ex IV 5. PAYMENTS FROM CUSTOMERS - All payments are accepted in cash or cheque only. Read al a2 a3 6. SHOEING EXPENSE - Horses require regular shoeing. A local groomer checks all 26 horses every two weeks and replaces shoes as necessary. His daughter has been boarding her horse at Saddle- Up for four years in a temporary stall that is not included in the 26 total stalls. In exchange for his services, his daughter is not charged a boarding fee. Typically, it costs $175 to replace all four shoes on a horse; a horse has its shoes replaced on average four times a year. Owners pay their own shoeing costs. 7. STAFF - Mrs. Atkinson is the main employee on site. A part-time receptionist works evenings and weekends, and there are 5 part-time stable cleaners. 8. ADMINISTRATOR AND BOOKKEEPER - Mrs. Atkinson opens the mail, prepares deposits for monies received, and updates the accounting records. She makes deposits daily. She prepares bank reconciliations on a monthly basis but notes that she may stop doing them because the owners don't review them. 9. SALARIES - The receptionist, Mrs. Atkinson and the stable cleaners are paid on the 15th of each month. The receptionist (Rose) is paid $200 per month while Mrs. Atkinson gets $600. Each of the stable cleaners earns $160 per month plus their earnings from performing building maintenance. See Exhibit III point 4. 10. INCOME TAX - Saddle-Up must pay 45% income tax six months after year-end. i.e. on 30 June. Zoom IN Zoom OUT Show or Hide Sheet Tabs1. Each of the three new owners contributed $180,000 cash for 500 common shares (1500 total shares issued) for 100% ownership of their new private company. The previous owners ran the business as a partnership. Ginny borrowed the full amount of her payment from the Commonwealth Bank while Millie used her inheritance from her step-father Michael. Ameya paid her share with her winnings from the blackjack table at Crown Casino. She is now banned from the casino as Crown's security cameras appeared to show her luck was reinforced by card counting. Ameya is pretty sure she won't be formally charged. 2. At their first "new owners" meeting Ginny proposed the acronym GAM to be used to refer to the three owners. Ameya thought this was a great idea as she thinks she has great legs. Millie thought GAM would be OK but disagreed about Ameya's legs. 3. GAM used the full $540,000 to purchase the assets of Saddle-Up partnership: Land $60,000 ; Buildings $180,000 ; Equipment $144,000 ; Horses $146,000 and Feed $10,000. The previous owners wish GAM the best of luck and are packing their bags to move to Digby, Nova Scotia, Canada to buy a scallop fishing boat. They've heard Digby's scallops are the best in the world. 4. Saddle-Up's buildings are in average condition. GAM estimate an average remaining useful life of 10 years with an estimated residual value of 25% of the purchased value of $180,000. Monthly building maintenance labour costs are budgeted at $900. On the other hand, the purchased equipment is in relatively poor condition. All equipment will need to be completely replaced in 7 years and will be saleable for 10% of its purchased value. 5. GAM's bank is agreeable with Millie's idea to account for Saddle-Up's horses as a non-current asset. They all agree that the average remaining life of the horses is 8 years. Ginny has insisted that horses not be soldwhen they are no longer fit for riding. As a animal lover she insists that non-rideable horses be put out to pasture until they die a natural death. 6. Millie was shocked that the previous owners didn't have insurance. She immediately organised a long-term policy with a local insurance company that will provide Saddle-Up with comprehensive insurance for 10 years at a total cost of $90,000. The company agent agreed to accept a note from Saddle-Up for payment in full in three months. 7. GAM are in total agreement that straight-line depreciation should be used for all non-current assets including horses. And that income taxes be paid promptly when they become due (see Exhibit II point 10).purchase details & financial projections Exhibit II (pt.1) describes one of Saddle-Up's main revenue streams - Stall Rental. GAM expect the usual turnover of boarders in the coming year with 7 existing stall renters being replaced by 7 new boarders. Stall renter turnover is a good / bad thing for Saddle-Up from a revenue standpoint. Turnovers result in stalls being unrented for 1 month on average resulting in lost rental revenue. Also bad is the fact that new renters are provided with the lower monthly rate for 12 months. However on the positive side of the ledger, new boarders must pay the one-time initial fee. Note: Assume all stall renter turnover occurs after six months and that the renter turnover is consistent (i.e. the same each year). 9. Exhibit 2 note 5 indicates that Saddle-Up's previous owners had not allowed credit sales. GAM has decided to permit all customers to pay by credit. They expect this to substantially increase revenue. Ameya assures the group that she knows some things about debt collection and to expect total adherence to the proposed 60 day credit terms (interest free). She also guarantees 100% collection of credit sales (i.e. no bad debts). Note: Assume all sales will now be credit (no cash sales) and that all customers will take the full 60 days (2 months) to pay their account. 10. GAM plan to purchase $2700 of feed one time per month during the coming year. They expect to have 45% of the last feed purchase on hand at the end of the year and to have not paid their supplier for the last purchase. 11. As described in Exhibit II point 3 Saddle-Up earns revenue from Frequent Riders. There are currently 18 frequent riders. GAM's discussions with the previous owners indicates that this number is extremely stable (no pun intended), that GAM can count on this revenue stream to continue. 12. Millie has provided the team with her estimates for Horse Riding Revenue for the coming year. She thinks they should be able to hire out each of Saddle- Up's horses for one three-hour ride 365 days per year. However, after some discussion team GAM has decided that hiring all of their horses every day of the year is overly optimistic. They decide to temper Millie's optimism slightly with their estimate that they will achieve 92% of the maximum Riding Revenue that would be earned with one three-hour ride for all of Saddle-Up's horses every day. 15. Ameya has organised financing of $190,000 that Saddle-Up will receive immediately. Ginny and. Millie agree that they should borrow this money and with Ameya's plan to construct an extension for a coffee shop. Ginny reckons that her 'special coffee' is legendary and that word will spread that Saddle-Up is the place to go. Team GAM agree that they should hire local builders Michael & Kenny as they promise to complete the job in six months. Michael guarantees their work for twice the life of Saddle-Up's other buildings as long as GAM guarantees to pay them $190,000 immediately on completion.Note: Assume all stall renter turnover occurs after six months and that the renter turnover is consistent (i.e. the same each year). Exhibit 2 note 5 indicates that Saddle-Up's previous owners had not allowed credit sales. GAM has decided to permit all customers to pay by credit. They expect this to substantially increase revenue. Ameya assures the group that she knows some things about debt collection and to expect total adherence to the proposed 60 day credit terms (interest free). She also guarantees 100% collection of credit sales (i.e. no bad debts). Note: Assume all sales will now be credit (no cash sales) and that all customers will take the full 60 days (2 months) to pay their account. 10. GAM plan to purchase $2700 of feed one time per month during the coming year. They expect to have 45% of the last feed purchase on hand at the end of the year and to have not paid their supplier for the last purchase. 11. As described in Exhibit II point 3 Saddle-Up earns revenue from Frequent Riders. There are currently 18 frequent riders. GAM's discussions with the previous owners indicates that this number is extremely stable (no pun intended), that GAM can count on this revenue stream to continue. 12. Millie has provided the team with her estimates for Horse Riding Revenue for the coming year. She thinks they should be able to hire out each of Saddle- Up's horses for one three-hour ride 365 days per year. However, after some discussion team GAM has decided that hiring all of their horses every day of the year is overly optimistic. They decide to temper Millie's optimism slightly with their estimate that they will achieve 92% of the maximum Riding Revenue that would be earned with one three-hour ride for all of Saddle-Up's horses every day. 15. Ameya has organised financing of $190,000 that Saddle-Up will receive immediately. Ginny and Millie agree that they should borrow this money and with Ameya's plan to construct an extension for a coffee shop. Ginny reckons that her 'special coffee' is legendary and that word will spread that Saddle-Up is the place to go. Team GAM agree that they should hire local builders Michael & Kenny as they promise to complete the job in six months. Michael guarantees their work for twice the life of Saddle-Up's other buildings as long as GAM guarantees to pay them $190,000 immediately on completion. Calculate coffee shop depreciation using the Building residual value % & Michael's guarantee for useful life. Ameya's buddy agrees that Saddle-Up repay the principle & simple interest of 4% per year in 5 years. (i.e. no payments until 31 December 2025). GAM expect to earn revenues of $12,000 next year with expenses (payments to suppliers) of $3,000. All coffee sales will be for cash or credit card. 14. Exhibit ll point 6 describes an arrangement for shoeing the horses. This is ending as the daughter is giving up horse riding so she can play ice hockey. As such Saddle-Up will have to pay the groomer in cash. GAM will make sure they don't pay shoeing costs for boarded horses.Information on new owners and notes from discussions Ameya is the town veterinarian and runs her own practice. Millie manages a pet store called Animal Indulgence Inc. (Animal Indulgence) which specializes in premium foods and products for animals. She has a 20% stake in Animal Indulgence, with the remainder split equally between her brother and Ginny. Although Ginny is a co-owner in Animal Indulgence, she is not involved in its operations. She is a primary school teacher and teaches horse riding lessons in her free time. Ameya, Millie, and Ginny have each purchased an equal number of common shares in SaddleUp. Things have been hectic so far, and the new owners have not had a lot of time to focus on the operations. However, all three have faith in Mrs. Atkinson, whom they have known for years. Millie noted that there seem to be fewer controls at SaddleUp than she is used to at Animal Indulgence. When Millie inquired, Mrs. Atkinson said she did not think it was a problem because, as the administrator of SaddleUp, she is always there and never takes a vacation. The three owners think things are going well so far but had a few concerns when you met with them. "There seems to be some confusion about lesson rates," says Ginny. "Lessons are $30 an hour for all instructors, but one of the clients mentioned that she has been paying the office $40 an hour. I'm not sure if that's an issue, since that money belongs to the outside instructors and we're just collecting it on their behalf." "SaddleUp is bringing in a lot of cash, but it seems to go right back out again!" notes Millie. "Mrs. Atkinson is always getting me to sign cheques. Sometimes I don't see the related invoice, but I know Mrs. Atkinson will have it. I know there are a lot of expenses in running a business, but there are so many that it is hard to keep up. All three of us are able to sign cheques and only one signature is required, which sometimes gets confusing. Once, Ginny and I both signed different cheques to pay the same computer supplier. When we called the supplier to ask for a refund, he told us he had sold us two computers, although we haveonly one in the office. "These issues would not have happened at Animal Indulgence, and I'm wondering if improvements could be made at SaddleUp"