Lecturer: Ms. Caroline McGroary
Company Information
You recently set up a luxury flower company in Riyadh, Saudi Arabia.The aim of your business is to offer customers fresh flowers with the most creative styles that are perfect for any occasion. Originally your store was located outside the city but in the last year you decided to rent asmall retail space in the Kingdom Mall. This has contributed to the success of your company as the brand has become very well-known and there has been a significant increase in customers.
A number of family members invested money in your business when it was set up. They have requested a meeting to discuss how the business is performing and the future plans of the business. In preparation for this meeting you have to prepare a report that includes the financial statements for the company and an outline of future plans (see requirements below).
See below the financial information relating to your company from the first year of trading from 01 July 2012 until 30 June 2013:
SAR
Opening Capital 300,000
Purchases 360,000
Rent 69,000
Telephone and postage 19,000
Light and Air Conditioning 22,000
Professional Fees 7,000
Recruitment fees (Driver for Delivery Van) 5,600
Inventory (01/07/12) 1,065,000
Advertising 13,000
Web design fees 4,000
Wages 287,000
Training 13,200
Miscellaneous expenses 34,000
Drawing 3,200
Long term bank loan 210,000
Equipment at costs 435,000
Equipment accumulated depreciation (01/07/12) 87,000
Delivery vehicles at cost 120,000
Delivery vehicles accumulated depreciation (01/07/12) 43,200
Revenue 2,414,800
Carriage inwards 87,000
Trade receivables 274,000
Trade payables 143,000
Delivery vehicle expenses 20,000
Cash at bank 360,000
Additional Informationnot included in the table above:
1. Inventory
Inventory on hand at 30 June 2013 cost SAR 890,000. The net realisable value of the inventory at the same date was SAR 895,000.
2. Depreciation
Depreciation is to be provided using the following rates:
Equipment 10% straight line method
Delivery Vans 20% reducing balance method
A full year’s depreciation is provided in the year of acquisition and none in the year of disposal.
3. Additions and Disposals
The company bought a new delivery van during the year costing SAR12,000. The old delivery van whichcost SAR10,000 three years ago was sold for SAR5,000.
4. Returns
During the year customers returned faulty goods which cost them SAR 45,000 when bought. A full cash refund was made to customers.
5. Trade Receivables
One of your trade receivables is experiencing trading difficulty and will be unable to pay a debt of SAR16,000 that is due. You are concerned that some of your other trade receivables may also be unable to pay so you create a bad debts provision of 2% on the outstanding trade receivables balance.
6. Accruals and Prepayments
Light and heat outstanding at 30 June 2013 amounted to SAR16,500.
At 30 June 2013 SAR 140,000 was paid for rent. The annual rent for your retail unit in the Kingdom Mall was SAR 120,000.
Additional wages and salaries for June 2013 of SAR25,000 were not paid until July 2013.
7. Finance Costs and Taxation
Interest of 10% on the value of the loan is outstanding at the end of the year.
Taxation for the year ended 30 June 2013 has been estimated at SAR 8,000.
Requirements:
You are required to prepare a reportaddressed to your investors for use in your upcoming meeting. The report should include the below information:
1. Explain the overall purpose of financial statements and the importance and value of financial information to users of financial statements.
The purpose of financial statements is to provide information about the financial position, performance and changes in financial position of companies, that is important to many users , such as mangers to manage the financial business and taking important decisions, shareholders to use Financial Statements to value the risks and returns of their investment, suppliers to know if they will be repaid, investors to know the financial position of the company, customers to know if the suppliers have the resources to keep continuing supplying goods ,employees use financial statements for rating company’s profitability and its effects on their future jobs. And governments require financial statements to determine tax.
2. Using the information in the table above prepare a trial balance. (5 marks)
DR CR CSAR
Opening Capital 300,000
Purchases 360,000
Rent 69,000
Telephone and postage 19,000
Light and Air Conditioning 22,000
Professional Fees 7,000
Recruitment fees (Driver for Delivery Van) 5,600
Inventory (01/07/12) 1,065,000
Advertising 13,000
Web design fees 4,000
Wages 287,000
Training 13,200
Miscellaneous expenses 34,000
Drawing 3,200
Long term bank loan 210,000
Equipment at costs 435,000
Equipment accumulated depreciation (01/07/12) 87,000
Delivery vehicles at cost 120,000
Delivery vehicles accumulated depreciation (01/07/12) 43,200
Revenue 2,414,800
Carriage inwards 87,000
Trade receivables 274,000
Trade payables 143,000
Delivery vehicle expenses 20,000
Cash at bank 360,000
Total 3,198,000 3,198,000
3. Prepare the Income Statement and Statement of Financial Position for your company using the trial balance aboveand the additional information. Your answer should include a detailed listing of all journal entries (T Accounts or List format) for the additional information presented above.
(50marks)
4. You are planning toexpand your business over the next year and need to apply to your bank for additional finance. Outline how much additional finance you will request from your bank and include an explanation of the following in your answer:
“ Why you are seeking additional financeand how this will benefit your business
“ Your repayment plan (i.e. how long, how much will you pay each month/year)
“ Any other information you deem relevant
(Maximum 500 words) (20 marks)
5. Reflect on and give a brief outline onwhat you learned from undertaking this project.
(Maximum 200 words) (10 marks)
Assignment Regulations:
? The project accounts for 15% of the module result.
? Each project should include a cover sheet stating:
¢ Module code
¢ Module name
¢ The name of your company (chosen by you)
¢ Your name and DCU student number
¢ Lecturer name
¢ Submission date
? Include a cover letter, table of contents and page numbers.
? Please use images and graphs to enhance the overall presentation of your project
? Soft copy and hard copy of project must be submitted by 10.00amon Wednesday27thNovember. This is the latest date on which the project may be submitted. Projects may be submitted earlier.
? Late projects will not be accepted.
? Projects must be submitted in the project box outside my office (0.500.52) door in the main DCU office 0.500 and a soft copy submitted through turn-it-in on moodle.
? You are personally responsible for submission of the project and its contents and youmust sign the cover sheet.
? Students are advised to consult the University web pages on the regulations governing Plagiarism, Copying and Collusion.
? Project marks will be notified to students on Wednesday December 4th.
? Please note that all assignment marks are provisional until the external examiner has performed their review during the Summer examination boards.
