His friends offered to invest in a new corporation with a $2,00,000 capitalization.Creator of a new and improved commercial paint spray.The incorporation cost was $2,500
Cost of equipment to be used in assembling the paint spray dispensers was $85,000
Short term loan from local bank was $30,000.
Manufacturing payroll was $145,000
Other manufacturing cost was $62,000
The sales done was $598,500
Depreciation cost was $8,500 but Hynes estimated the useful life of equipment to be 10 years.
1. PETER HYNES
Dispensers of California, Inc.
Presented by
Mayur Fofandi
Omkar Mishra
Keyuri Bapat
Amit Singh
Nitish Kumar
2. Creator of a new and improved commercial
paint spray.
INTRODUCTION
3. His friends offered to invest in a new
corporation with a $2,00,000 capitalization.
4. • The incorporation cost was $2,500
• Cost of equipment to be used in assembling the paint spray
dispensers was $85,000
• Short term loan from local bank was $30,000.
• Manufacturing payroll was $145,000
• Other manufacturing cost was $62,000
• The sales done was $598,500
• Depreciation cost was $8,500 but Hynes estimated the useful
life of equipment to be 10 years.
5. Patent
A patent is an exclusive right granted for an invention, which
is a product or a process that provides, in general, a new way
of doing something, or offers a new technical solution to a
problem.
The United States Patent and Trademark Office (USPTO or
Office) is the government agency responsible for examining
patent applications and issuing patents.
6. Types of patent
1. A utility patent protects the functional aspects of an
invention. It covers machines, processes and methods. It is
granted for 20 years.
2. A design patent issued for the appearance, design, shape or
general ornamentation of an invention. It is given for 14
years.
3.A plant patent is available for discovery or invention of plants.
It is given for 20 years
7. Accounting Concept for Preparation of
Income statement:
• MATCHING CONCEPT: The matching concept represents the
primary difference between accrual accounting & cash basis
accounting .’’Matching” means the firms report revenue and the
expenses that brought them in the same period.
• PERIOD CONCEPT: An accounting period is the span of time
covered by a set of financial statements . This define the range over
which business transactions are accumulated into financial
statement. Needed by investor so they can compare the results of
successive time period.
• CONSISTENCY CONCEPT: The consistency concept requires
accountants to be consistent from one accounting period to another in
applying accounting principles, methods, practices, and procedures.
8. • REVENUE RECOGNITION CONCEPT: This principle state that,
under the accrual basis of accounting, you should only record
revenue when an entity has substantially completed a revenue when it
has been earned.
• CONSERVATISM CONCEPT : This is the general concept of
recognizing expenses and liabilities as soon as possible when there
is uncertainty about the outcomes, but to only recognize revenue and
assets when they are assured of being received.
• MATERIALITY CONCEPT : The materiality concept is principle
reporting firms must disclose all such matters. They must disclose
everything that is important to the report audience.
9. BALANCE SHEET OF Dispensers of California, Inc.
At the opening of the year (Amount in $)
ASSETS Amount LIABILITIES & OWNERS’ EQUITY Amount
Current Assets: Owners’ Equity
Cash 80,000 Hynes’ Equity 1,20,000
Investors’ Equity 80,000 2,00,000
Non-current Assets:
Patent 1,20,000
Total 2,00,000 Total 2,00,000
10. How might Hynes and the investors use the profit-plan
in managing the business.
1. The profit plan prepared by Hynes can be helpful in forecasting the
financial position (assets and liabilities) of the business.
2. This would assist Hynes and investors to plan the business in advance and
improve on profits.
3. The information can be used to determine the solvency of the business by
showing how much assets are available for payment of liabilities and
dividends.
4. It can prove as a good tool for budgeting and can uncover many potential
bottlenecks before they occur.
5. Hynes and investors may use the profit plan to decide on goals and
objectives that can serve as benchmark for evaluating subsequent
performance.
11. Transaction Analysis
EQUITY
Sr. no. CASH + PATENT + COMPONENTPARTS +EQUIPMENTS =BANK LOAN +A/C PAYABLES +TAX PAYABLE +OWNERS' EQUITY DESCRIPTION OF TRANSATION
1 80,000 1,20,000 2,00,000 Capital stock
2 -2,500 -2,500 Incorporation Cost
3 85,000 85,000 Equipment purchased on credit
4 -25,000 -25,000 Labour and Development Cost
5 2,12,100 2,12,100 Component part purchased on credit
6 30,000 30,000 Loan taken from bank
7 1,45,000 -1,45,000 Manufacturing payroll payable
8 62,000 -62,000 Manufacturing cost payable
9 -63,000 -63,000 Selling, general and admtn. cost paid
10 (Bal. Fig.) -1,97,000 -1,97,000 Component parts used
11 5,98,500 5,98,500 Total sales received in cash
13 -8,500 -8,500 Depreciation charged on equipments
14 -20,000 -20,000 Patent amortization
16 -5,000 -5,000 Dividend paid
17 22,500 -22,500 income tax provision made
18 -5,04,100 -5,04,100 All amounts due to payables, paid in cash
19 -30,500 -30,000 -500 Bank loan repaid with interest
Total 78,400 1,00,000 15,100 76,500 Nil Nil 22,500 2,47,500 Total
ASSETS LIABILITIES
12. BALANCE SHEET OF Dispensers of California, Inc.
At the end of the year (amount in $)
ASSETS Amount LIABILITIES & OWNERS’ EQUITY Amount
Current Assets: Current Liabilities & Provisions:
Cash 78,400 Income tax provision 22,500
Component Parts 15,100 93,500
Non-current Liabilities:
Non-current Assets: Nil Nil
Patent 1,00,000
Equipment 76,500 1,76,500 Owners’ Equity
Capital Stock:
Hynes’ Equity 1,20,000
Investors’ Equity 80,000 2,00,000
Add: Retained Earnings 47,500 2,47,500
Total 2,70,000 Total 2,70,000
13. Income statement of Dispensers of California, Inc.
at the end of the year (Amount in $)
PARTICULARS Amount Amount
A. Revenue (Sales) 5,98,500
B. Expenses:
Incorporation cost 2,500
Labour and development cost 25,000
Manufacturing payroll 1,45,000
Other manufacturing cost 62,000
Selling, general and administration cost 63,000
Interest on bank loan 500
Depreciation 8,500
Patent amortization 20,000
Component parts used 1,97,000
Income tax provision 22,500
Dividend paid 5,000 (5,51,000)
C. Retained Earning (A-B) 47,500
14. Hynes made a number of accounting decisions. Do
you agree with these decisions?
• There are three accounting decisions that require Hynes to exercise
judgement. They are:
1. Patent valuation (60% of capital stock)
2. Patent amortization period (6 year period)
3. Equipment depreciation period (10 years with no salvage value)
4. While the patent's legal life is 16 years, the technology advancements
can reduce the effective life of patent to 10 years and is a fair
assumption.
Yes me and my teammates do agree with the accounting decisions
taken by Mr. Peter Hynes.
15. BALANCE SHEET OF Dispensers of California, Inc.
At the opening and closing of the year (amount in $)
ASSETS OP. YEAR CL. YEAR LIABILITIES OP. YEAR CL. YEAR
Current Assets: Current Liabilities & Provisions:
Cash 80,000 78,400 Income tax provision Nil 22,500
Component Parts Nil 15,100
Non-current Liabilities: Nil Nil
Non-current Assets:
Patent 1,20,000 1,00,000 Owners’ Equity
Equipment Nil 76,500 Capital Stock 2,00,000 2,47,500
Total 2,00,000 2,70,000 Total 2,00,000 2,70,000
16. Adjustments:
• Equipment purchased during the year for $85,000 and depreciation
charged $8,500.
• There is no withdrew or introduced of capital stock during the year.
• Dividend paid $5,000.
• Interest on Bank loan $500.
17. Cash Flow Statement (AS-3 Revised) of Dispensers of California, Inc.
(Amount in $)
PARTICULARS $ Amount
A. Operating Activity
Net profit after interest & tax and
extraordinary items
47,500
Add: Income tax provision 22,500
Add: Dividend 5,000
Add: Interest on bank loan 500
Net profit before interest & tax 75,500
Add: Patent Amortization 20,000
Add: Depreciation on Equipment 8,500
Operating profit before working
capital changes
1,04,000
Less: Increase in Component parts (15,100)
Cash inflow from Operating activity 88,900
PARTICULARS $ Amount
B. Investing Activity
Purchase of Equipment (85,000)
Cash outflow from Investing activity (85,000)
C. Financing Activity
Dividend Paid (5,000)
Interest on bank loan (500)
Cash outflow from Financing activity (5,500)
Net increase in cash & cash equivalent
(A+B+C)
(1,600)
Add: Opening balance of Cash 80,000
Closing balance of Cash 78,400
18. Return on equity: The return on equity (ROE) is a measure of the
profitability of a business in relation to the equity, also known as net assets
or assets minus liabilities. ROE is a measure of how well a company uses
investments to generate earnings growth.
Return on Sales: Return on sales, often called the operating profit margin,
is a financial ratio that calculates how efficiently a company is at generating
profits from its revenue.
Current ratio: Current ratio is a liquidity ratio that measures a company's
ability to pay short-term obligations. It tells investors and analysts how a
company can maximize the current assets on its balance sheet to satisfy
its current debt and other payables. So a current ratio of 4.16 would
mean that the company has 4 times more current assets than current liabilities.