File is attached.
Project - Phase 1 - To Do FNCE 390 - Project - Phase 1 POPLAR LTD. Formation of Business IIntroduction For several years now you have been working with three "boot-strap" business operations involved in the manufacture of fertilizer and other nutrients. As a "green world" business investor you have recently joined a boutique venture capital firm. You believe in your mission and have introduced to the venture firm partners a project you believe has unlimited potential if these three businesses are combined (your fellow school mates). You have also convinced your school mates that there are many potential benefits by combining the three operations and gaining access to your firms venture capital funding. Believing you, they have asked you to "make it happen " and complete the combination. Your documented project plan and implementation steps are outlined below: The business's will combine effective February 1, 2023 into a single incorporated entity. You will create a February 1, 2023 Opening Balance sheet reflecting the closing of the business combination transaction. The businesses will then transition operations from "as is" to an integrated entity over the next year. The focus will be around reorganizing operations to improve financial performance and getting everyone aligned with strategy. You will develop the forecast income statement for the first year of operations using the assumptions provided for the year ended January 31, 2024 as well as the January 31, 2024 Balance Sheet. The plan is to establish a firm base believing it takes one year to establish operations before heading down the growth plan you have in mind. Financial performance for the first year is based on 2023 combined results of the individual businesses with certain adjustments you expect to see from the formation of the new company. IIProject Plan ACombination process - Entries for Column H 1Complete the column "Combined As Is" Balance Sheet by adding the respective balances of the individual entities. Column H reflects the totals of columns B-D-F 2Complete the column "Combined As Is" Income Statement by adding the respective balances of the individual entities. Column H reflects the totals of columns B-D-F 3Review the "Combined As Is" Ratios (each entity has formulas to work with) Test check accuracy of ratios in Column H BIncorporation process - revaluation adjustments reflect in Column J - new Balance column L 1The incorporation process has been structured such that an incorporated entity created by your firm will acquire the operations of each entity. As such all assets are revalued to their fair market values at the time of acquisition. The fair market values are: CashAll cash balances of original operations paid to founders - Combined cash = $0 Opening Balance Sheet cash = $0 Accounts receivableAccounts receivable revalued 8% higher as no allowance for doubtful accounts InventoryInventory is revalued at 10% lower due to obsolete raw materials Prepaid expensesTransfer $105,000 to Inventory as goods received day of transaction. Deferred revenueReduce by 20% to reflect work completed - record change to venture capital short term loan as is considered a purchase adjustment Landcombined revised market value per appraisal2,200,000 Building combined revised market value of2,450,000 Equipment increase combined market value to975,000 Vehiclesrevised market value380,000 Accumulated depreciationAdjusted all historical balances to a zero balance as assets are revalued and reflect a new starting value Goodwill and intangiblesAdd $420,000 for goodwill Accounts payableDue diligence discovered an additional $400,000 in payables Income taxes payableNone as start-up Deferred tax liabilityAdd $385,000 for tax effect of transaction as deferred tax liability Term loanNo change MortgageNo change Current portion of debtNo change Due to relativesConvert 30% of balance to share capital - repay 70% using venture capital short term loan Proprietorship capitalConvert full balances to share capital Partnership capitalConvert full balances to share capital Share capitalProprietor + Partnership capital + 30% of due from relatives converted Retained EarningsNone as the start-up of new legal entity Venture capital loanBalancing figure of all other balance sheet balances and adjustments C2023-2024 Operations - Operational Changes - reflect in 2023-2024 adjustments column (Column P) 1Revenues will increase by $9,300,000 2Gross profit will be 32% based on 2023-2024 pro forma ending revenues 3Selling costs will increase by 10% of incremental sales 4Administrating costs will increase by 9% of incremental cost of sales 5Amortization will increase by $259,000 per annum (in addition to historical) 6Interest expense will increase based on venture capital short term loan balance at 9% interest rate 7Income taxes will be 26% of combined incomes as now an incorporated entity - split as follows - 30% deferred - 70% current - adjust balance sheet accounts for these amounts 8Adjust final accounts receivable balances to reflect a 45 day collection cycle - difference to cash (use 360 days) 9Adjust final inventory balances to reflect 72 days on hand - difference to cash (use 360 days) 10Adjust final accounts payable balances to reflect a turnover ratio of 45 days - difference to cash (use 360 days) 11Acquired new formulation equipment for $255,000 and financed 100% with a new term loan at end of year. Term loan is repayable over five years and life of equipment will be 10 years. DBalance Sheet Steps - balancing everything 1Columns B through to L will balance at the Balance Sheet level - ignore income statement effects. 2Columns N & P must reflect the income statement changes and will balance by recording the balance amount in cash If you leave cash blank - the figure reflected in line 57 * -1 should work. Once cash adjusted - line 57 = 0 3Column R will balance if 1 and 2 above are balanced EYour Management Report Upon completion you are to prepare a brief report and include as an Appendix your completed Template Your report should address the following: 1) describe 3 benefits of incorporation into a larger entity 2) 3 areas of financial improvement you want to address going forward based on ratio analysis 3) identify 3 potential conflicts that could arise between management and your venture capital firm 4) What Board of Director committees would you recommend to oversee business? Using Management Team and Venture Capital firm staff, set up your Board of Directors with a maximum of 5 people. Describe the area of expertise they will bring to the business. 5) Build the Year 1 cash flow statement to support the change in cash for Year 1 statement section and add as Appendix 6) Should dividends be considered at this time. Maximum Report length is 2 pages plus Appendices FProject Responsibility As you develop the project you are required to report to the Venture Capital Senior Manager to ensure work is progressing correctly. You are encouraged to ask for assistance at any time - email with questions and proposed solutions. DO NOT LEAVE THIS TO LAST MOMENT. Good practice for mid-term preparation. Each column must balance at the balance sheet level. Working on a column by column basis will be most effective with the respective columns cross adding. If a formula exists in a cell - do not alter it. If unsure of what to do - contact the Senior Manager. The cells with require work by you. Poplar Template POPLAR LTD.Owner: Margaret LentilPartners: Helen Grass (45%) + Candace Pot (55%)Shareholder: Charles GreenBalance Sheet OpeningAs Is = Combined + Corporate Tax EffectOperational Changes Including Corporate TaxForecast Results Start-up Balance SheetsCanGrow (proprietorship)Bluebis (partnership)BigYield Inc.CombinedRevaluationPOPLAR LTD.First Year Feb 1 2023 - Jan 31 2024AdjustmentsPOPLAR LTD. January 31 2023February 1February 1 202320232023As IsAdjustmentsOpeningOperations2023-2024Jan 31 2024 Assets Current assets Cash$ 95,000$ 125,000$ 65,000$ 285,000$ - 0$ 285,000$ 285,000Balancing Figure Accounts receivable1,450,0001,400,0001,025,000$ 3,875,0003,875,0003,875,000 Inventory945,0001,350,000985,000$ 3,280,0003,280,0003,280,000 Prepaid expenses85,000100,00055,000$ 240,000240,000240,000 2,575,0002,975,0002,130,0007,680,000- 07,680,000- 0- 07,680,000 Property, plant and equipment Land700,000700,000675,0002,075,0002,075,0002,075,000 Buildings240,000650,000495,0001,385,0001,385,0001,385,000 Equipment135,000600,000120,000855,000855,000855,000 Vehicles75,000220,000100,000395,000395,000395,000 1,150,0002,170,0001,390,0004,710,000- 04,710,000- 0- 04,710,000 Less: Accumulated amortization Accumulated amortization - Buildings(60,000)(145,000)(100,000)(305,000)(305,000)- 0- 0(305,000) Accumulated amortization - Equipment(30,000)(90,000)(195,000)(315,000)(315,000)(0)(0)(315,000) Accumulated amortization - Vehicles(90,000)(120,000)(40,000)(250,000)(250,000)(0)(0)(250,000) (180,000)(355,000)(335,000)(870,000)- 0(870,000)(0)(0)(870,001) 970,0001,815,0001,055,0003,840,000- 03,840,000(0)(0)3,839,999 Goodwill and other intangibles- 0- 0- 0- 0- 0- 0 $ 3,545,000$ 4,790,000$ 3,185,000$ 11,520,000$ - 0$ 11,520,000$ (0)$ (0)$ 11,519,999 Liabilities and Shareholders' Equity Current liabilities Accounts payable$ 2,110,000$ 2,650,000$ 1,664,900$ 6,424,900$ 6,424,900$ 6,424,900 Deferred revenue115,000150,000220,000$ 485,000485,000485,000 Income taxes payable- 0- 0- 0- 05,607,000(18,662)5,588,338 Venture short term loan - due on demand- 0- 0- 01,152,0001,152,0001,152,000 Current portion of long term debt90,000135,000130,000$ 355,000- 0355,000355,000 2,315,0002,935,0002,014,900$ 7,264,9001,152,0008,416,9005,607,000(18,662)14,005,238 - Term loan payable400,000600,000- 01,000,0001,000,0001,000,000 Refinance term loan- 0- 0- 0- 0- 0 Mortgage payable- 0550,000560,0001,110,0001,110,0001,110,000 Due to Relatives500,000200,000740,0001,440,0001,440,0001,440,000 900,0001,350,0001,300,0003,550,000- 03,550,000- 0- 03,550,000 Less: portion due within one year(90,000)(135,000)(130,000)(355,000)-(355,000)--(355,000) 810,0001,215,0001,170,0003,195,000- 03,195,000- 0- 03,195,000 Deferred income taxes- 0- 0- 0- 05,607,000(6,221)5,600,779 3,125,0004,150,0003,184,90010,459,9001,152,00011,611,90011,214,000(24,883)22,801,017 Shareholders' Equity Proprietorship Capital420,000- 0- 0420,000420,000420,000 Partnership Capital- 0640,000- 0640,000640,000640,000 Share capital- 0- 0100100100100 Retained earnings- 0- 0- 0- 019,936,000(78,797)19,857,203 420,000640,0001001,060,100- 01,060,10019,936,000(78,797)20,917,303 3,545,0004,790,0003,185,00011,520,0001,152,00012,672,00031,150,000(103,680)43,718,320 - 0- 0- 0- 0(1,152,000)(1,152,000)(31,150,000.40)103,679.60(32,198,321) POPLAR LTD.AS IS Income StatementCanGrow (proprietorship)Bluebis (partnership)BigYield Inc.CombinedFirst YearOperating AdjustmentsPOPLAR LTD. Year Ended January 31202320232023As IsOperations2023-2024Jan 31 2024