Statement of Changes in Stockholders Equity - Assignment Example

A Company ANNUAL REPORT For the Fiscal Year Ended June 30, 2009 Table of Contents Page/s Annual Report of the Board of Directors 2 Declarations of the Board of Directors 3 Report of the Independent Auditor 4 Statement of Financial Position 5 - 6 Statement of Comprehensive Income 7 Statement of Changes in Stockholders’ Equity 8 Notes to Financial Statements 9 - 10 Annual Report of the Board of Directors General overview The financial position as presented in the financial statements evidently shows the economic stability of the company. While the business venture is not extraordinarily impressive, the picture of sustainability and positive survival is apparent. Results of operations The company has earned a net income from its regular operations in the amount $ 50,000 which is equivalent to a yield of about $ .09 per share for the total of 550,000 ordinary shares. However, overall net income after tax is $ 63,000 or $ .1145 per share. Stockholders’ equity In view of the realization of net income after tax of $ 63,000, retained earnings could have been increased by this figure. However, part of the retained earnings in the sum of $ 30,000 was transferred to the general reserve fund for purposes which may be identified and outlined upon the sound discretion and decision of the board of directors, the top decision-maker in the management echelon. A larger chunk of retained earnings was distributed for dividends. This amounted to $ 80,000. Acquisitions Several fixed assets were acquired from Hugo Ltd. consisting of land, machinery and vehicles. Total historical value per books is $ 180,000 while total fair market value is $ 160,000 at valuation pegged as at 29 June 2009. Final terms on consideration and payment will be made after the year-end cut-off date. Building construction It is knowledge to stockholders that the company does not have its own building the one presently in use being a rented edifice. For the matter, the board of directors resolved on 20 July 2009 to cause the construction of a building in one of company’s lots. The project will have a total budgeted cost of $ 500,000. Funding for this plan will be sourced via the issuance of additional shares scheduled in November 2009. Since the project will be commenced after 30 June 2009, the cost and other factors will necessarily be presented after than date. Dividends A declaration for $ 80,000 dividends was made and decided upon on 30 June 2009. The undertaking did not need further authorization. The said dividends declaration was charged against retained earnings. Item in litigation This is to make known the fact that a customer filed a civil litigation allegedly for defect in the product which caused some physical injury in an incident in February 2009. It has been opined by the lawyers of the company that the probability of an adverse decision can be safely placed at 25%. Declarations of the Board of Directors The board of directors had made the following official declarations during the covered fiscal year. 1. Distribution of dividends with no further requirement for authorization in the sum of $80,000. This is likewise mentioned in the foregoing report of the board of 2. Construction in the company’s own land of a building for an estimated cost of $500,000 to be financed by the issuance of additional shares set in November 2009. 3. Transfer of the amount of $30,000 from retained earnings to the general reserve for specific purposes that may hereafter approved by the board of directors in its sound discretion. Report of the Independent Auditor The Stockholders and the Members of the Board of Directors A Company Australia I have audited the accompanying financial statements of A Company which comprise the statement of financial position as at December 31, 2008, the statement of comprehensive income and the statement of changes in equity for the fiscal year that ended on June 30, 2009. Management is responsible for the preparation and fair presentation of these financial statements in accordance with Australian Financial Report Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. My responsibility is to express an opinion on these financial statements based on my audits. I conducted my audits in accordance with the Australian Standards on Auditing. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurances whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the judgment of the auditor, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. In my opinion, the financial statements present fairly, in all material respects, the financial position of A Company as at June 30, 2009, and its financial performance for the fiscal year that ended on June 30, 2009, in accordance with the Australian Financial Reporting Standards. Auditor 10 August 2009 (See accompanying notes to the financial statements.) (cent-less) Exhibit A A Company STATEMENT OF FINANCIAL POSITION As at June 30, 2009 A S S E T S Current Assets Cash at bank $ 61,000 Accounts receivable $ 103,000 Allowance for doubtful debts 38,000 -------------- 65,000 Inventory 93,100 -------------- Total Current Assets $ 219,100 Property and Equipment Land 269,100 Machinery (net at cost) 401,200 Vehicles (net at cost) 130,000 Furniture (net at cost) 40,000 ------------- Total Property and Equipment 840,300 Investments 290,000 -------------- TOTAL ASSETS $ 1,349,400 vvvvvvvvvv (See accompanying notes to the financial statements.) (cent-less) A Company Exhibit A-1 STATEMENT OF FINANCIAL POSITION As at June 30, 2009 LIABILITES AND STOCKHOLDERS’ EQUITY Current Liabilities Accounts payable $ 11,000 Income tax payable 27,000 Interest payable 9,100 Provision for Annual Leave 21,500 Accrued wages 25,000 Dividend payable 80,000 ------------------- Total Current Liabilities $ 173,600 Non-current Liabilities Provision for Long Service Leave 14,300 Loan payable 130,000 ------------------- Total Non-current Liabilities 144,300 -------------- TOTAL LIABILITIES $ 317,900 Stockholders’ Equity Retained Earnings, July 1, 2008 138,500 Less dividends declared 80,000 -------------------- 58,500 Less transfer to the general reserve 30,000 ` -------------------- 28,500 Add: Net income for the year (Exhibit B) 63,000 -------------------- Retained Earnings, June 30, 2009 91,500 Share capital 868,000 General reserve 72,000 -------------- TOTAL STOCKHOLDERS’ EQUITY 1,031,500 ---------------- TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,349,400 vvvvvvvvvv (See accompanying notes to the financial statements.) (cent-less) A Company Exhibit B STATEMENT OF COMPREHENSIVE INCOME For the Fiscal Year Ended June 30, 2009 Sales $ 810,000 Less Cost of Sales 320,000 --------------- Gross Profit on Sales 490,000 Add Service Revenue 20,000 --------------- Gross Revenue from Operations $ 510,000 Costs and Expenses Depreciation – machinery 107,800 Other expenses 76,100 Rent expense 65,000 Commission expense 57,000 Auditors fees 51,000 Bad debts 30,000 Depreciation – vehicles 29,000 Legal fees 25,000 Depreciation – furniture 10,000 Interest expense 9,100 --------------- Total Costs and Expenses 460,000 -------------- Net income from Operations 50,000 Less Loss on sale of Investment 30,000 -------------- Net income before Other Income 20,000 Add Other Income Dividend from investment 10,000 Interest income 20,000 Income from sale of machinery 40,000 --------------- Total Other Income 70,000 --------------- Net income before income tax 90,000 Provision for income tax 27,000 --------------- NET INCOME FOR THE YEAR – Exhibit A-1 $ 63,000 vvvvvvvvv (See accompanying notes to the financial statements.) (cent-less) Exhibit C A Company STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY For the Fiscal Year Ended June 30, 2009 Retained Share General Earnings Capital Reserve Total --------------- --------------- --------------- --------------- Balances, July 1, 2008 $ 138,500 $ 800,000 $ 122,000 $ 1,060,500 Bonus shares of 50,000 ordinary shares paid and issued from the general reserve at $ 1.60 per share 80,000 ( 80,000) - --------------- --------------- --------------- --------------- Balances after the issuance of bonus shares 138,500 880,000 42,000 $ 1,060,500 Transfer from retained earnings to the general reserve ( 30,000 ) 30,000 - --------------- --------------- --------------- --------------- Balances after transfer from retained earnings to the general reserve 108,500 880,000 72,000 1,060,500 Net income for the year 63,000 63,000 --------------- --------------- --------------- --------------- Balances after net income for the year 171,500 880,000 72,000 1,123,500 Dividends declared ( 80,000) ( 80,000) --------------- --------------- --------------- --------------- Balances after dividends declared 91,500 880,000 72,000 1,043,500 Share issue costs ( 12,000) ( 12,000) --------------- --------------- --------------- --------------- Balances, June 30, 2009 $ 91,500 $ 868,000 $ 72,000 $ 1,031,500 vvvvvvvvv vvvvvvvvv vvvvvvvvv vvvvvvvvv (See accompanying notes to the financial statements.) Exhibit D A Company Notes to the Financial Statements For the Year Ended June 30, 2009 1. Accounting method The company adopts the accrual method of accounting.1 2. Receivables A provision for doubtful accounts was considered and debited to bad debts amounting to $30,000.2 3. Inventory loss A portion of the inventory costing $18,000 was discovered to be damaged and would have to be disposed of. The finding was made on 2 July 2009 and the circumstances surrounding the same are not reflected in the current financial statements and will instead be set forth subsequently after any salvage value shall have been realized.3 This information is for the purpose of disclosing the afore-mentioned damage to the inventory discovered after 30 June 2009. While the subject financial incident took place outside of the fiscal year under consideration, the same has to be included in these notes in view of the materiality of the amount and of its unusual character. 4. Property and Equipment The company does not own any permanent asset of its own for use in operations it being that the building housing the offices is being rented. However, the management has decided to cause the construction of a building in one of its lots for a projected cost of $ 500,000. This information is included in these notes for purposes of disclosure. A piece of land acquired from Hugo Ltd. was acquired at the cost of $100,000 and recorded in the books as such while its fair market value is $120,000 as at June 30, 2009. Upon the other hand, the following equipment were also acquired from Hugo Ltd., thus – Book value in the Fair market records of Hugo Ltd. value as at as at 29 June 2009 29 June 2009 ------------------ ------------------ (a) Machinery $ 80,000 $ 60,000 (b) Vehicle A 40,000 50,000 (c) Vehicle B 60,000 50,000 ----------------- ------------------ Total $ 180,000 $ 160,000 vvvvvvvvvv vvvvvvvvvv The equipment pieces mentioned above were not reflected in the financial statements because the payment of the consideration and the terms thereof were to be finalized after the fiscal year end cut-off. Since the acquisition was announced on 30 June 2009, the relevant depreciation cost would have no significant effect on the presentation of the financial position of the company. A machinery purchased on 1 July 2005 was originally expected to have a useful life of ten years from acquisition date with a residual value of $ 30,000.00. However, upon revaluation by the board of directors, it was estimated to have a remaining useful life of only five years as at 1 July 2008. Necessary adjustments were made in the accounting records. Depreciation is reckoned on the basis of the useful life of each asset item according to the straight line method.4 5. Loan payable This liability, incurred on 1 July 2005, bears interest at 7% per annum which is payable on a yearly basis. The principal is due for a one-time final settlement on 30 June 2011. 6. Stockholders’ equity The company had paid a share issue cost of $12,000. 7. Adjustments and corrections There were some disagreements in the classification and recording of certain accounting transactions which were accordingly adjusted and corrected.5 8. Miscellaneous matters Expense items which are not significant in amounts were all lodged under Other expenses for purposes of convenience like the one for postage, $ 165, and another for stationary, $230. References Accrual Accounting. Investopedia. [internet]. Accessed November 8, 2009. Available at: Adjusting Entries. CliffsNotes. The Fastest Way to Learn. [internet] Accessed November 8, 2009. Available at: Davis, Gary. What Does Writing Off a Bad Debt Mean? eHow. [internet] Accessed November 8, 2009. Available at: Kennon, Joshua. Straight Line Depreciation Method. About.com:Investing for Beginners.[internet] Accessed November 8, 2009. Available at: Subsequent Events. FINANCIAL ACCOUNTING STANDARDS BOARD. [internet] Accessed November 8, 2009. Available at: Read More