Pro Forma Financial Statements

Accounting policies 

The principal accounting policies adopted in the preparation of these financial statements are set out below 

Basis of preparation 

The financial statements are prepared in compliance with International Financial Reporting standards under the historical cost convention, and are presented in the functional currency USD (Vonder, 2017) . 

Revenue recognition 

Sales represent the fair value of consideration received or receivable for provision of motor vehicle repair and services. 

Property and equipment 

All categories of property and equipment are initially recognized at historical cost. All other items of property and equipment are stated at their fair value less accumulated depreciation for the period. Subsequent costs are included in the asset's carrying value only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured ( Chalu & Nyello, 2019) . Depreciation is calculated using the reducing balance method to write down the cost of each asset to its residual value over its estimated useful life using the following annual rates: 

Rate - % 

Equipment’s 10 

Furniture’s 10 

Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount the recoverable amount is the higher of an asset's fair value less cost to sell and value in use. Gains and losses on disposal of property and equipment are determined by reference to their carrying amount and are taken into account in determining operating profit. 

	Figure 1.3
	TRIAL BALANCE
		$	$
	Equipment’s	20,000.00
	Furniture	5,000.00
	Land	5,000.00
	Cash balance	1,500.00
	Bank balance	20,000.00
	Owner contribution		51,500.00
		51,500.00	51,500.00

		Figure 1.2
		IINCOME STATEMENT
			$			$
		REVENUE
		Sales revenue				90,000.00
		less sales returns				- 1,000.00
		Net sales				89,000.00
		Less: cost of goods sold
		Opening stock	-
		Add: purchases	38,000.00
		Cost of goods available for sales	38,000.00
		Less
		Purchases returns	-600
		Closing stock	- 18,000.00
		Cost of goods sold				19,400.00
		Net profit				69,600.00
		Operating expenses
		Advertising				1,130.00
		Commissions				2,760.00
		Depreciation
		Equipment	2,000.00
		Furnitures	500.00			2,500.00
		Entertainment expenses				1,800.00
		Payroll expenses				5,000.00
		Insurance expenses				850.00
		Rent and rates				12,000.00
		Research and development				1,500.00
		Travel expenses				6,800.00
		Utilities
		Water	450.00
		Electricity	700.00
		Internet	12,000.00
		Web hosting and domain				13,150.00
		Other expenses				20.00
		Total operating expenses				47,510.00
		Net income before tax				22,090.00
		Income tax @ 35%				7,731.50
		Net income after tax				14,358.50
	Figure 1.1
	CASH FLOW STATEMENT
	Cash at the beginning of the year				46,849.00
					$
	OPERATIONS
	Cash receipt from
	Customers				80,660.00
	Other operations				1,200.00
	Cash paid for
	Inventories purchases				30,000.00
	General operation and administration expenses				45,359.00
	Interest expenses				-
	Income taxes				6,000.00
	Net cash flow from operations				501.00
	Investing activities
	Cash receipts from
	Sale of equipment				2,000.00
	Sale of furniture				250.00
	Cash paid for
	Purchase of equipment				15,000.00
	Purchase of furniture				5,000.00
	Net cash flow from investing activities				- 20,000.00
	Financing activities
	Cash receipt from
	Own personal account				30,000.00
	Borrowings				10,000.00
	loans				10,000.00
	Cash paid for
	Repayment of loans				-
	Repayment of borrowings				10,000.00
	Net cash flow from financing activities				40,000.00
	Net cash and cash equivalence for the period				20,501.00
	Net cash and cash equivalence at the beginning of the year				46,849.00
	Net cash and cash equivalence at the end of the year				67,350.00
		Figure 1.0
		BALANCE SHEET
				$			$
		ASSETS
		FIXED ASSETS
		Equipment		20,000.00
		Accumulated depreciation for equipment		2,000.00			18,000.00
		Furniture		5,000.00
		Accumulated depreciation for furniture		500.00			4,500.00
		Land					5,000.00
		Total fixed assets					27,500.00
		CURRENT ASSETS
		Cash balance		419.00
		Bank balance		46,430.00
		Inventory		18,000.00
		Accounts receivables		8,340.00
		Prepaid expenses		50.00
		Total current assets					73,239.00
		Total assets					73,239.00
		LIABILITIES AND
		LIABILITIES
		LONG TERM LIABILITIES
		Loan		10,000.00
		Borrowings		10,000.00
		Total long term debts					20,000.00
		CURRENT LIABILITIES
		Accounts payables		12,150.00
		Short term loans		5,000.00
		Income tax payable		1,731.00
		Total current liabilities					18,881.00
		Total liabilities					18,881.00
		EQUITY
		Authorized shared ( 10,000 shares @ $ 100.00) shared ( 10,000 shares @ $ 100.00)
		Issued and fully paid share ( 2,000 share @ $100.00)					20,000.00
		Retained earnings					14,358.50
		Total equity					34,358.50
		Total liabilities and equity					73,239.50

NOTES TO THE FINACIAL STATEMENTS 

The annual financial statement are prepared in accordance to the generally accepted accounting principles and International accounting standards (Hapsoro & Suryanto, 2017) . The entity operation is on a going concern. Below are a detailed explanation on most of the financial transactions conducted during the year. 

Net sales revenue during the year was $89,000 which included sales return of 1,000 USD that was due to defective packing of the company’s products by 600 USD and 400 USD as a result of broken seals. Cash sales was 80,660 USD while credit sales was 8,340 USD. Sales were evenly earned during the year. 

The annual purchases for the company amounted to 38,000 USD out which 8,000 USD was on credit purchases. 

Software acquisition cost of 6,800 USD is for the transportation of the company’s products to clients. 

Utilities cost of 450 caters for both water bills of 150 USD and electricity bills of 300 USD respectively. 

Web hosting and domain bill of 13,150 includes a deposit of 50 USD made to the web hosting company. 

Other expenses of 20 USD are for the miscellaneous expenses catted for during the period under review. 

The insurance expense of 850 USD paid for covers both employees and companies assets during the financial year under review. 

Income tax of 7,731 USD related to the current financial year. Only 6,000 USD had been paid in the year as an advance tax. The balance of 1,731 USD has not be paid for and hence recorded as income tax payable in the balance sheet. 

The net income before tax was 7,731.50 USD while the after tax earnings were 14.358.50 USD for the financial year. 

The equipment and furniture were acquired during the fincial year. There were no disposal of any of the equipment’s or furniture during the fincial year (Chalu & Nyello, 2019) . The net values of equipment was found to be 18,00 USD while that of furniture to be 4,500 USD respectively after factoring the deprecation for the period of 2,000 USD and 500 USD for equipment and furniture respectively as follows; 

Depreciation of equipment’s = 20,000*0.1 = 2,000 

Depreciation of furniture = 5,000*0.1 = 500 

This assets are expected to have a useful life of ten years as from their purchase date to the organization. 

The cash and cash equivalence at the start was 46,849 USD, 20,501 USD as changes during the period and 67,350 USD as of the end period. 

The cash balances as the end of the year were 419 USD and 46,430 USD for cash and bank balances respectively. The bank balance was made up of bank balances held up in several banks. 

Accounts receivables balance of 8,340 USD was made 

Accounts payables of 11,150 USD included accrued rent of 3,000 USD, research and development expenses of 3,000 USD and 5,000 USD for the unpaid statutory deductions and land rate of 150 USD respectively. 

Both the equipment’s and furniture are estimated to have a useful life of ten years from their purchase dates respectively. Their deprecation is calculated follows; 

Deprecation on equipment’s = 20,000*.10 =2,000 

Deprecation on equipment’s = 5,000*.10 =500 

The 10,000 USD loan amount is made up of a 4,000 USD 16% p.a interest rate loan from Barclays and 6,000 USD 14% p.a interest rate from Chase bank. Repayments for both loans are to commence as from the next financial year based on the loan agreement between the bank and the firm. 

Borrowing are from family member and friends and they accrue no interest, as summarised below. 

Daisy 3,000 USD 

Leonard 2,000 USD 

Mark 2,500 USD 

Catherine 2,500 USD 

The company has an authorised share capital of 10,000 shares @ 100 USD but only 2,000 share @100USD have been issued. Are for a privately listed company. 

References 

Chalu, H., & Nyello, R. (2019). Organisational Characteristics, Environmental Factors and Accounting Methods for Depletion, Depreciation and Amortization (DD&A) in Oil and Gas Companies in Tanzania.  ORSEA JOURNAL ,  14 (1). 

Hapsoro, D., & Suryanto, T. (2017). Consequences of going concern opinion for financial reports of business firms and capital markets with auditor reputation as a moderation variable: an experimental study.  European Research Studies Journal ,  20 (2A), 197-223. 

Tsamis, A., & Liapis, K. (2017). Fair value and cost accounting, depreciation methods, recognition and measurement for fixed assets. 

Vonder Haar, L. (2017). The Financial Analysis and the Application of US GAAP Principles.