Valentine Computer Limited is a fictitious company. Any similarity to any company registered in Jamaica or any company listed on the Jamaica Stock Exchange is entirely coincidental and unintentional. The persons and transactions in this project are fictitious. Any similarity to any person living or dead and to any transaction which has occurred or might occur in the future is entirely coincidental and unintentional. The company is incorporated as a public company under the laws of Jamaica and its shares are quoted on the Jamaica Stock Exchange. The company was incorporated on September 15, 2005 and started operating on November 1, 2005. The initial public offering (IPO) of the company was on December 20,2013. The principal activities of the company are the sale of computers, the sale of computer parts, and computer repairs. The company maintains its accounts using the historical cost convention, modified for any revaluation. The company's year end is October 31 . During its first year of operation the company opened one office in Kingston and one office in Saint Andrew. In the second year of operation the company opened an office in Mandeville and one in Montego Bay, bringing the total number of offices to four (4). In the third year of operation the company opened an office in Ocho Rios and one in Portmore bringing the total number of offices to six (6). The expected expansion of the company to May Pen and Santa Cruz in 2017 did not materialize. This was due to the slow down in growth in new computer sales. This expansion is expected to materialize in summer of the year 2018. Computer repairs increased significantly due to the 'Killer Virus' (2016 computer repairs $655,000) The auditors Gordon \& Gray are willing to continue in office. The auditors have completed their audit and they intend to issue an unqualified audit report. The registered office of the company is located at 00 Harbour Street, Kingston, Jamaica. The annual general meeting of the company is scheduled for Friday the 27th March 2018 at 10:30 a.m. at Pegasus Hotel, 81 Knutsford Boulevard, Kingston 5, Jamaica. The notice for the annual general meeting was sent to the shareholders by the Company Secretary, Melissa williams on February 27, 2018 . (A) Audit fees for the financial year ended October 31,2017 are estimated at $250,000. Under provision of audit fees for the prior year amounted to $15,000. Audit fees are not yet reflected in the accounts. (B) The Directors on December 3, 2017 approved a dividend of $0.20 per share in respect of the financial year ended october 31, 2017. The dividend is payable on December 18 , 2017. The dividend is not yet reflected in the accounts. (C) Each year on October 31, $200,000 (principal) is payable in respect of the debenture loans until the debentures are repaid. The amount due for October 31, 2017 was paid on that date and the amount due for October 31, 2016 was paid on time. The interest on the debenture loans is payable on a quarterly basis, on January 31, April 30, July 31, and October 31. The interest for the quarter ended October 31 , 2017 was not paid until November 3, 2017. No accrual was made at the year end for the october 31, 2017 outstanding interest. The interest for the October 31, 2016 quarter was paid on November 4,2016 and is included in the interest expense account for the current year. The interest for the October 31, 2016 quarter was properly accrued in the prior year accounts. The debentures are unsecured. Interest is calculated on the reducing balance basis. (D) The income tax rate is 25\%, and the corporation tax rate is 331/3 . (E) The foreign exchange bank account is kept at National Commercial Bank, the salaries bank account is kept at Citibank and the general bank account is kept at Bank of Nova Scotia. (F) Round all calculations to the nearest $1,000. (G) The interest income and the dividend income were received net of income tax. Only the net amounts received were reflected in the accounts. (H) The allowance for bad debt is a specific allowance. (I) The issue price for each ordinary share is $1. The minutes of the last board meeting indicated that the board had unanimously agreed to increase the authorized share capital of the company from 10,000,000 ordinary shares to 20,000,000 ordinary shares. The increase is necessary because the company intends to have a 2 to 1 rights issue in June 2018. The additional ordinary shares will rank pari passu with the existing ordinary shares of the company. (J) The corporation tax for the current year is estimated at $1,483,000 by the tax accountant, after all adjustments were made. The corporation tax is not yet reflected in the accounts. (K) Corporation tax under provision for the year ended october 31,2016 amounted to $5,000. The information about the under provision was not received until september 2017 . The under provision is not yet reflected in the accounts. (L) Transactions in foreign currencies have been converted at the rates of exchange ruling at the dates of those transactions and foreign currency bank balances should be translated at the rates of exchange ruling on that date. (M) During the financial year ended October 31, 2017, two (2) motor vehicles were acquired. On November 1, 2016, one (1) motor vehicle was acquired at a capitalised cost of $600,000 under a finance lease arrangement. The finance lease period is three (3) years. The other motor vehicle was acquired on October 31,2017 at a capitalised cost of $600,000. The payment for this motor vehicle was made from the general bank account. The payment is not yet reflected in the accounts. (N) On October 30, 2017 the valuation of land and buildings by Kirstine and Associates, professional valuators, based on current market prices revealed a value of $8,600,000. The revaluation is not yet reflected in the accounts. (0) Short term investments comprise: $400,000 fixed deposit that will mature in 30 days, and $190,000 that will mature in 151 days. (P) Depreciation is calculated on property, plant and equipment using the straight line method of depreciation at rates estimated to write off the assets over their expected useful lives as follows: Furniture&fittingsComputerequipmentMotorvehiclesLand&buildings10%20%20%221% The depreciation charge for the current year: The accounting clerk charged depreciation on the motor vehicle acquired under the finance lease arrangement using the straight line method, at a rate of 20\%. No depreciation was charged on the motor vehicle acquired on the last day of the financial year. (Q) Directors' emoluments include $260,000 for directors' fees. The directors retiring by rotation pursuant to article 90 of the Articles of Association are Mr. Frank Rose, Miss Demi Jordan, and Miss Monique Sharpe who being eligible offer themselves for re-election. (R) Deferred taxation for the income statement should be decreased by $5,000 for the financial year ended October 31 , 2017. The adjustment is not yet reflected in the accounts. (S) At the October 24,2017 Board of Directors meeting the directors made a decision to sell some of the company's long (T) Inventories are stated at the lower of cost and net realisable (V) Finance lease obligation future payments for the years ending: The finance lease commenced on November 1, 2016. A lease payment of $320,000 was made on October 31, 2017 . The lease payment included finance charges amounting to $120,000. The interest rate on the finance lease is 208 . (W) During the current financial year, a lawsuit was filed against the company by a customer. The customer is claiming damages amounting to $386,000 arising out of an alleged breach of contract by the company to supply computers to the customer. The company's lawyers crow \& Grant are of the opinion that the plaintiff's (customer's) claim against the company is unlikely to succeed. (X) The $20,000 donation was allocated to Wolmers Girls School (80%) (Computer Laboratory) and to a Christmas treat (20\%) for children living in Downtown Kingston. (Y) At October 31, 2017 commitments for capital expenditure not contracted for and for which no provision has been made in the accounts amounted to $2,600,000. (Z) A Mandeville customer made a complaint in writing on october 28, 2017 about the poor quality of a hard drive replacement. On October 31, 2017, the President of Valentine computer Limited made a verbal commitment to the customer to install a new hard drive at a cost of $10,000. Valentine Computer Limited financial statements for 2017 were approved by the Board of Directors on January 26, 2018. Page 8 Account number 3101 is the cash sales account for computers, computer parts, and computer software. Account number 3104 is the sales returns account for computers, computer parts, and computer software. Other relevant accounts are: NameofDirectorChrisAdams(Chairman)CourtneyJames(President)FrankRoseDemiJordanMichaelMooreJuliaFisherMoniqueSharpeNumberofSharesHeld50,00025,00025,0005,0002,0001,00026,500NumberofSharesHeldIndirectly2,000NilNil100NilNilNil TenLargestShareholdersComputerSoftwareLimitedChrisAdamsDebbie-AnnWongKarenMillsDelorisFentonDamianCunninghamRoryFranksonPeta-GayeBrownDaneJohnsonMoniqueSharpeNumberofSharesHeld220,00050,00038,20035,00035,00035,00030,00028,50028,00026,500 Shareholdings of Senior Managers and Officers CourtneyJames(President)MelissaWilliams(CompanySecretary)LeightonLindo(VicePresident)*KeishaScarlett(VicePresident)**NumberofSharesHeld25,000Nil1,0001,000 * Computers and Computer Software ** Computer Parts and Computer Repairs Page 10 Income Statement for the year ended October 31, 2016 Page 12 Page 13 At the conclusion of the audit, susan wray (a new staff member), one of the four members of the audit team indicated that she owned several shares in Valentine Computer Limited. She encouraged Debbie Hyde another member of the audit team to purchase shares in Valentine Computer Limited. Susan expects the stock price of the company to increase significantly because of the increase in profitability revealed by the audited accounts. Susan also indicated that she owned stocks in another company that is audited by Foster \& Thompson, but she is currently not a member of the audit team that is responsible for that audit. Required: (1) Prepare Valentine Computer Limited annual report for the year ended October 31, 2017. (32 marks) (2) Presentation of the Chairperson's/Chairman's Report. ( 3 marks) (3) What course of action should be taken by Debbie Hyde