Prepare financial statement plus basic notes for the financial year

You are 5 partners starting up your own business as a corporation with share capital. Each of you

invests SAR 40,000 cash in your shares, with each share having a value of SAR100. Your

agreement is that at the end of the year you will distribute earnings through a dividend of

SAR 4 per share, if your cash balance is more than 50% of the initial balance invested.

The operation you are starting up is an online store, and you are planning to sell household

goods home design pieces. Since you are a new business, you are starting with the same

kind of mug that is decorated to with the customer name in calligraphic style writing.

Adding the name costs SAR 1 per mug (material), and you have hired a calligrapher full-time

for this task. Their salary is SAR 5,000 a month. Importantly, the calligrapher has developed

a special type of font that makes your mugs unique, and has spent about 1 month worth of

work doing so.

You also have hired a website developer, SAR 10,000 a month, but all other tasks

(distribution, sales management, administration and warehouse) are taken care of by you as

the owner team. To store your mugs and run operations, you have rented a small space for

SAR 10,000 a month, inclusive of utilities. However, you have purchased equipment for the

calligraphy, warehouse and all other operations of SAR 60,000. All equipment is expected to

be useful for 5 years, and be evenly used throughout this time period.

The mugs you purchase from a supplier abroad, cost per mug, including shipping, SAR 2. You

charge SAR 12 per mug with a regular font and SAR 16 per mug with the special font.

In the first year of operations, these are monthly sales volume figures:

Jan: 100

Feb: 80

Mar: 120

Apr: 150

May: 200

June: 200

Jul: 100

Aug: 100

Sept: 500 (incl 100 regular, plus 400 special order from a local school)

Oct: 200

Nov: 200

Dec: 200

The business used the special font for the special order and charged SAR14 per mug, since

this was a bulk order. According to this, a new customer requested a special order of 1000

mugs, paid upfront, to be delivered in January of the next year.

The business also pays rent upfront for a year from 1 July to 30 June.

Finally, the business is currently thinking about purchasing land to build their premises on

the land.

Follow the regular accounting cycle and set-up the accounting recording (using the

accounting equation analysis) accordingly. Prepare financial statement plus basic notes for

the financial year 1 Jan to 31 Dec, in line with IFRS, and advise on the following:

a) According to IFRS, how should they deal with the rent payment? Explain your choices

in your own words.

b) According to IFRS, how should they deal with the specially developed calligraphy

font?

c) The business wants advice on whether to follow historic cost or revaluation for the

land it is thinking to buy and all other assets it deals with. According to IFRS, provide

comprehensive advice on how they can apply the revaluation approach, if at all.

d) Based on year 1, what is the business’s sustainable growth rate?

e) The business thinks about acquiring another, related, business that will take over the

sales function in a busy shopping zone (new Diriyah development in Riyadh). This is a

successfully running business whose owner wants to move on to a new venture. It

has had stable profits over the previous three years, around SAR50k per year. On the

basis of IFRS, advise how to approach the acquisition, if at all.

f) Following the integrated reporting framework, identify the key capitals that the

business employs, and how you propose to measure them.

g) Discuss how ESG reporting is currently developing. Assess the development from

your perspective.

The final grade is determined based on the following criteria:

1) subject properly addressed and elaborated on: I gave pointers for whatneeds to be covered, did you cover them, how well did you cover them, and didyou also add your own elements beyond what I proposed2) proper structure and presentation: we covered the accounting cycle andfinancial statements in quite some detail, so please adhere to those outlines.3) quality of writing – in the case of notes, integrated reportingdiscussion and the following answers, writing greatly matters.

4) argumentation and presentation of questions.

Answer should be in excel sheet for the accounting equasion, and a report to answer the remaining questions

Group project MiF:
You are starting up your own business as a corporation with share capital. Each of you
invests SAR 40,000 cash in your shares, with each share having a value of SAR100. Your
agreement is that at the end of the year you will distribute earnings through a dividend of
SAR 4 per share, if your cash balance is more than 50% of the initial balance invested.
The operation you are starting up is an online store, and you are planning to sell household
goods home design pieces. Since you are a new business, you are starting with the same
kind of mug that is decorated to with the customer name in calligraphic style writing.
Adding the name costs SAR 1 per mug (material), and you have hired a calligrapher full-time
for this task. Their salary is SAR 5,000 a month. Importantly, the calligrapher has developed
a special type of font that makes your mugs unique, and has spent about 1 month worth of
work doing so.
You also have hired a website developer, SAR 10,000 a month, but all other tasks
(distribution, sales management, administration and warehouse) are taken care of by you as
the owner team. To store your mugs and run operations, you have rented a small space for
SAR 10,000 a month, inclusive of utilities. However, you have purchased equipment for the
calligraphy, warehouse and all other operations of SAR 60,000. All equipment is expected to
be useful for 5 years, and be evenly used throughout this time period.
The mugs you purchase from a supplier abroad, cost per mug, including shipping, SAR 2. You
charge SAR 12 per mug with a regular font and SAR 16 per mug with the special font.
In the first year of operations, these are monthly sales volume figures:
Jan: 100
Feb: 80
Mar: 120
Apr: 150
May: 200
June: 200
Jul: 100
Aug: 100
Sept: 500 (incl 100 regular, plus 400 special order from a local school)
Oct: 200
Nov: 200
Dec: 200
The business used the special font for the special order and charged SAR14 per mug, since
this was a bulk order. According to this, a new customer requested a special order of 1000
mugs, paid upfront, to be delivered in January of the next year.
The business also pays rent upfront for a year from 1 July to 30 June.
Finally, the business is currently thinking about purchasing land to build their premises on
the land.
Follow the regular accounting cycle and set-up the accounting recording (using the
accounting equation analysis) accordingly. Prepare financial statement plus basic notes for
the financial year 1 Jan to 31 Dec, in line with IFRS, and advise on the following:
a) According to IFRS, how should they deal with the rent payment? Explain your choices
in your own words.
b) According to IFRS, how should they deal with the specially developed calligraphy
font?
c) The business wants advice on whether to follow historic cost or revaluation for the
land it is thinking to buy and all other assets it deals with. According to IFRS, provide
comprehensive advice on how they can apply the revaluation approach, if at all.
d) Based on year 1, what is the business’s sustainable growth rate?
e) The business thinks about acquiring another, related, business that will take over the
sales function in a busy shopping zone (new Diriyah development in Riyadh). This is a
successfully running business whose owner wants to move on to a new venture. It
has had stable profits over the previous three years, around SAR50k per year. On the
basis of IFRS, advise how to approach the acquisition, if at all.
f) Following the integrated reporting framework, identify the key capitals that the
business employs, and how you propose to measure them.
g) Discuss how ESG reporting is currently developing. Assess the development from
your perspective.