Property, plant and equipment (note 2) - 20 marks I'd like you to take a look again at the PP&E continuity schedule (Note 2 of the Company's financial statements) and to use this as part of our substantive testing. The Company uses straight-line depreciation for all PP&E assets. From a discussion that I had with the controller responsible for PP&E tracking at the Company, he stated the following: a. The Company's land was purchased January 1, 2022 for $150,000. This piece of land was in a good location and the company would use this for at least 25 years. Since we acquired it, it has increased 200% in value - it's an amazing investment. b. On January 1, 2021 the Company purchased a new building. On July 1, 2022, the Company moved into the new building which included all production, distribution and administrative functions (ie. all functions). The Company paid $500,000 for the building's construction and its intended use. The building has an estimated useful life of 25 years and no salvage value. c. All equipment currently used by the Company was originally purchased on January 1, 2022. Acquisition costs were $350,000, and spent an additional $70,000 to bring it to its intended use. The equipment has an estimated useful life of 10 years and no salvage value. 4 d. The Company recently purchased a truck, an asset they had never before owned. This eliminated most of the expense of paying shipping companies to move finished goods to customers. The truck was purchased on January 1, 2022. The Company paid $15,000 for the truck and to bring it to its intended use. The truck has an estimated useful life of 5 years and $3,000 salvage value. ASSETS Current Assets Cash $ 770,605 $ 515,455 Accounts receivable, net 1 116,100 99,750 Inventory 1,040,050 1,087,250 Total current assets 1,926,755 1,702,455 Non-current assets Property, plant and equipment, net 931,000 480,000 Total non-current assets 931,000 480,000 TOTAL ASSETS $ 2,857,755 $ 2,182,455 LIABILITIES Current liabilities Accounts payable $ 508,000 $ 635,750 Interest payable 15,000 18,000 Bonds payable, current portion 60,000 60,000 Total current liabilities 583,000 713,750 Non-current liabilities Bonds payable, due 2027 240,000 300,000 Total non-current liabilities 240,000 300,000 TOTAL LIABILITIES 823,000 1,013,750 SHAREHOLDERS' EQUITY Authorized 15,000,000 no par value Common shares: Issued December 31, 2022: _________ 4 400,000 400,000 Issued December 31, 2021: 1,000,000 Retained earnings 1,634,755 768,705 TOTAL SHAREHOLDERS' EQUITY 2,034,755 1,168,705 TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 2,857,755 $ 2,182,455 KUUJJUAQ INC. 2022 ANNUAL REPORT 5 Statement of income Kuujjuaq Inc. For the Year ended December 31 Note 2022 2021 Net sales $ 5,863,000 $ 5,276,700 Cost of goods sold 2,345,200 2,110,680 Gross profit 3,517,800 3,166,020 Operating expenses Administrative expenses 1,172,600 1,055,340 Other operating expenses 879,450 791,505 Depreciation and amortization 64,000 20,000 Total operating expenses 2,116,050 1,866,845 Other expense Interest expense 3 15,000 18,000 Operating Profit 1,386,750 1,281,175 Income tax expense 554,700 512,470 Net income $ 832,050 $ 768,705 KUUJJUAQ INC. 2022 ANNUAL REPORT 6 Statement of cash flows Kuujjuaq Inc. For the Year ended December 31 Note 2022 2021 Profit for the year $ 832,050 $ 768,705 Depreciation and amortization 2 64,000 20,000 Changes in balances Accounts receivable (24,000) - Allowance for doubtful accounts 1 7,650 - Inventory 47,200 18,000 Accounts payable (127,750) - Interest payable 3 (3,000) 18,000 Net operating activities 796,150 824,705 Sale (acquisition) of land (150,000) - Sale (acquisition) of buildings (350,000) - Sale (acquisition) of equipment - - Sale (acquisition) of truck (15,000) - Net investing activities 2 (515,000) - Acquisition (repayment) debt 3 (60,000) - Issuance (repurchase) of shares 4 54,000 - Dividends paid (20,000) - Net financing activities (26,000) - Net change in cash 255,150 824,705 Cash, beginning of year 515,455 (309,250) Cash, end of year $ 770,605 $ 515,455 Property, plant and equipment The Company uses straight line depreciation for all property, plant and equipment assets. On January 1, 2022, the Company acquired a building which the Company moved into on July 1, 2022. The Company also purchased a truck to eliminate shipping expenses. PROPERTY, PLANT AND EQUIPMENT CONTINUITY SCHEDULE Acquisition Cost Accumulated Depreciation Beginning Ending Beginning Ending Balance Added Sold Balance Balance Added Sold Balance Land - 150,000 - 150,000 - 6,000 - 2,000 Building 500,000 - - 500,000 20,000 20,000 - 40,000 Equipment - 350,000 - 350,000 - 35,000 - 35,000 Truck - 15,000 - 15,000 - 3,000 - 3,000 TOTAL 500,000 515,000 - 1,015,000 20,000 64,000 - 84,000