Question

Can you please form a balance sheet and income statement with the information:

Start-up costs for the business will require a large amount of expenses. First a section of land will need to be purchased. This area is expected to be 500ft2. This is a sufficient quantity of space to build the warehouse where will growing will be undertaken. The warehouse will be 300ft2. This size means there will be enough room for all business activities such as growing, organizing and distribution to occur. The block of land will be purchased in the rural Hamilton area, ten minutes’ drive from the CBD. The projected cost of the land along is $500,000. The cost to build the warehouse will be a further $1M, this will include the cost of erecting the building and all other expense’s related to its construction. The combined $1.5M will be funded through bank loans and government funding, which will cover approximately $100,000

Once the land and warehouse is built, operations will begin and other expenses will need to be accounted for. Electricity, internet and telephone will be the greatest expense worth $3000 per month. This is mainly due to the high usage of UV lighting throughout the plant to grow the cannabis. Staff wages will account for $500,000, $50,000 annually and ten staff employed. Operating expenses will be $10,000 yearly, this is for advertising and marketing. Depreciation of all machinery assets is calculated by 10% p.a straight-line method. These machines will cost $500,000 to purchase and used assist the growth cycle of the cannabis. Cost of goods sold per year will equal $275,000, this is mainly the seeds which are imported for growth. Revenue is projected to be $1.5M annually.

Overall, the start-up costs for the business will be $2M. To pay for this, $100,000 will be funded by the government and the remaining sum of $1.9M will be loaned from a bank over 10 years. Interest is 5% and loan repayments per year will be $190,000 add interest.

Assets of the company are land, valued at $500,000. Warehouse, valued at $1,000,000. Machinery, valued at $500,000 deprecated using straight line method at 5%.

Accounts receivable is $50,000.

Accounts payable is $125,000.

Answer 1

Income Statement
Particulars		Amount
Sales Revenue		$1,500,000
Less: Cost of Goods Sold Expense		$275,000
Gross Profit		$1,225,000
Less: Operating Expenses
Electricity, Internet and Telephone Expenses	36000
Staff Salaries	500000
Advertising and Marketing Expenses	10000
Depreciation ((1,000,000 + 500,000) * 10%)	150000	$696,000
Income from Operations		$529,000
Other Income/Expenses
+ investment income
– Interest Expense (1,900,000 * .05)		$95,000
Income before Income Tax		$434,000
– Taxes
Net Income		$434,000

Balance Sheet
Particulars	Amount
Assets
Current Assets
Cash and Cash Equivalents (See Working Note 1)	$469,000
Accounts Receivable	$50,000
Non Current Assets
Property, Plant and Equipment	$2,000,000
Accumulated Depreciation	-$150,000
Total	$2,369,000
Liabilities
Current Liabilities
Accounts Payable	$125,000
Non-Current Liabilities
Government Fund	$100,000
Bank Loan (1,900,000 - 190,000)	$1,710,000
Equity
Retained Earnings	$434,000
Total	$2,369,000

Working Notes:

Cash Account
Particulars	Amount	Particulars	Amount
Government Fund	100000	Land	500000
Bank Loan	1900000	Building	1000000
Sales	1450000	Machinery	500000
		Electricity, Internet and Telephone Expenses	36000
		Staff Salaries	500000
		Advertising and Marketing Expenses	10000
		Interest Expense	95000
		Purchases	150000
		Bank Loan	190000
		Balance c/d	469000
Total	3450000	Total	3450000

Notes:

1. In the question there is a contradiction, first it is mentioned the depreciation rate of machinery is 10% and later mentioned depreciation is 5% and depreciation rate for building is not given. I have considered rate of 10% for both Machinery and building.

2. It is assumed that Government Fund is to be repaid.

Please let me know if you require any further clarification. I am happy to help you. Kindly give me a feedback.

Thank you,