Charlie's Toys and Equipment Limited For the Year End 31 March, 2017 May 14, 2018 May 14, 2018

financial statements Charlie’s Toys and Equipment Limited For the year ended31 March, 2017 May 14, 2018 May 14, 2018 Contents Statement of Profit or Loss and Other Comprehensive Income 2 Statement of Changes in Equity 3 Statement of Financial Position 4 Statement of Cash Flow 6 Notes to the Financial Statements 7 1.1 Corporate Information 7 1.2 Compliance Statement 7 1.3 Summary of Significant Accounting Policies 7 1.4 Correction of an error 8 Other financial Notes 9 Ratio Calculation: 13 Ratio Analysis: 13 Current Ratio 13 Debt to Equity Ratio 14 Times

financial statements Charlie’s Toys and Equipment Limited
For the year ended 31 March, 2017
MAY 14, 2018

Contents
Statement of Profit or Loss and Other Comprehensive Income..................................................................2
Statement of Changes in Equity..................................................................................................................3
Statement of Financial Position...................................................................................................................4
Statement of Cash Flow...............................................................................................................................6
Notes to the Financial Statements..............................................................................................................7
1.1 Corporate Information......................................................................................................................7
1.2 Compliance Statement......................................................................................................................7
1.3 Summary of Significant Accounting Policies......................................................................................7
1.4 Correction of an error........................................................................................................................8
Other financial Notes...............................................................................................................................9
Ratio Calculation:.......................................................................................................................................13
Ratio Analysis:...........................................................................................................................................13
Current Ratio.........................................................................................................................................13
Debt to Equity Ratio..............................................................................................................................14
Times Interest earned............................................................................................................................14
Average Receivable collection period....................................................................................................14
Return on equity ratio...........................................................................................................................15
Price earnings ratio................................................................................................................................15
Dividend Yield on ordinary shares.........................................................................................................15
References:................................................................................................................................................16

Charlie’s Toys and Equipment Limited
Statement of Profit or Loss and Other
Comprehensive Income
For the year ended on 31 March, 2017
Particulars Note 2017 ($)
Continuing operations
Sales 1,876,000
Less: Cost of sales 2.1 828,500
Gross Profit 1,047,500
Other operating income 2.2 134,000
Depreciation and amortization expenses 116,400
Employee benefit expenses 100,000
Selling & Distribution expenses 250,000
Administration expenses 268,000
Other operating expenses 2.3 123,250
Operating Profit 323,850
Finance costs 2.4 46,200
Profit before tax from continuing operations 277,650
Income tax expense 77,742
Profit for the year from continuing operations 199,908

Discontinued operations
Loss after tax for the year from discontinued operations 30,000
Profit for the year 169,908
Other comprehensive income
Other comprehensive income not to be reclassified to profit
or loss in subsequent periods:
Gain on revaluation of property, plant and equipment 100,000
Total other comprehensive income 100,000
Total comprehensive income for the year, net of tax 269,908

Charlie’s Toys and Equipment Limited
Statement of Changes in
Equity
For the year ended 31 March, 2017
(Amount in $)
Particulars Retained earnings Asset revaluation reserve Total
Balance as at 1 April, 2016 185,000 100,000 285,000
Profit for the year 169,908 - 169,908
Other comprehensive income - 100,000 100,000
Prior period adjustments * (6,500) - (6,500)
Payment of dividends (32,000) - (32,000)
Balance as at 31 March, 2017 316,408 200,000 516,408
* During the preparation of the 2017 financial statements, it has become apparent that inventory to the
value of $6,500 that had been recognized as sold in the year ended 31 March 2016 was incorrectly
included in inventory as at 31 March 2016. The directors believe that this amount is material and hence
adjustment has been made.

Charlie’s Toys and Equipment Limited
Statement of Financial
Position
As at 31 March, 2017
Particulars Note 2017 ($) 2016 ($)
ASSETS
Non-current assets
Property, plant and equipment 2.5 798,600 550,000
Investment properties 300,000 270,000
Non-current financial assets 2.6 50,000 -
1,148,600 820,000
Current assets
Inventories 148,000 86,000
Trade and other receivables 2.7 99,750 78,000
Prepayments 1,000 -
Cash and cash equivalents 2.8 3,000 30,000
251,750 194,000
Total assets 1,400,350 1,014,000
EQUITY AND LIABILITIES
Equity
Issued ordinary share capital 2.9 340,000 240,000
Preference share capital 2.10 100,000 100,000
Retained earnings 316,408 185,000
Asset revaluation reserve 200,000 100,000
Total equity 956,408 625,000
Liabilities
Non-current liabilities
Loans 2.11 192,000 235,000
192,000 235,000
Current liabilities
Trade and other payables 95,000 88,000
Loans 48,000 45,000
Bank overdraft 52,000 -
Income tax payable 37,742 21,000
Interest payable 19,200 -
251,942 154,000

Total liabilities 443,942 389,000
Total equities and liabilities 1,400,350 1,014,000

Charlie’s Toys and Equipment Limited
Statement of Cash Flow
For the year ended 31 March, 2017
Particulars 2017 ($)
Cash flow from operating activities
Cash generated from operations (see note 2.14) 311,000
Less: Income tax paid (61,000)
Cash flow from operating activities 250,000
Cash flow from investing activities
Purchase of land (200,000)
Purchase of party equipment (120,000)
Proceeds from sale of party equipment 40,000
Purchase of shares in company (50,000)
Cash used in investing activities (330,000)
Cash flow from financing activities
Proceeds from issuance of ordinary share capital 100,000
Repayment of mortgage loan (280,000)
Proceeds from mortgage loan 240,000
Proceeds from bank overdraft 52,000
Payment of dividend (32,000)
Payment of financing costs (27,000)
Cash flow from financing activities 53,000
Net decrease in cash and cash equivalents (27,000)
Opening cash and cash equivalents 30,000
Closing cash and cash equivalents 3,000

Charlie’s Toys and Equipment Limited
Notes to the Financial Statements
For the year ended on 31 March, 2017
1.1 Corporate Information
Charlie’s Toys and Equipment Limited (CTEL) imports toys from overseas and sells them to retail
stores throughout New Zealand. It also hires out bouncy castles, electric toy cars and other party
equipment for children’s parties, as well as audio equipment such as jukeboxes for adult parties.
1.2 Compliance Statement
These financial statements have been prepared in accordance with Generally Accepted Accounting
Practice (GAAP), FMCA 2013 and NZX listing rules. They comply with New Zealand Equivalents to
International Financial Reporting Standards (NZ IFRS), other applicable Financial Reporting
Standards, and authoritative notes as appropriate for profit oriented entities. The financial
statements also comply with International Financial Reporting Standards (IFRS).
1.3 Summary of Significant Accounting Policies
Basis of Preparation
The financial statements have been prepared on a historical cost basis, except for investment
properties, land and warehouse (classified as property, plant and equipment) that have been
measured at fair value. The carrying values of recognized assets and liabilities that are designated as
hedged items in fair value hedges that would otherwise be carried at amortized cost are adjusted to
record changes in the fair values attributable to the risks that are being hedged in effective hedge
relationships.
The financial statements are presented in New Zealand dollars, except when otherwise indicated.
The financial statements provide comparative information in respect of the previous period.
Property, plant and equipment
Property, plant and equipment are measured at cost less accumulated depreciation and impairment
losses. The cost of purchased property, plant and equipment is the value of the consideration given
to acquire the assets and the value of other directly attributable costs, which have been incurred in
bringing the assets to the location and condition necessary for their intended use.
Property, plant and equipment are depreciated on a straight line basis to allocate the cost, less any
residual value, over their useful life. The estimated useful life of property, plant and equipment are
as follows:
Warehouse – 50 years
Party Equipment – 5 years

The company have chosen the cost model to account for party equipment and the revaluation
model to account for land and the warehouse. The company annually reviews the carrying amounts
of land and warehouse for impairment. An asset’s carrying amount is written down immediately to
its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable
amount. In assessing whether an asset is impaired, reference is made to individual asset profitability
and any other known events or circumstances that may indicate that the carrying amount of an
asset may be impaired.
Gains and losses on disposals of assets are determined by comparing proceeds with the carrying
amount. These gains and losses are included in the income statement. Costs incurred on repairs and
maintenance are charged to the income statement during the financial period in which they are
incurred.
Inventory
Inventories are stated at the lower of cost and net realizable value. Cost is calculated using a first in,
first out cost basis method and includes expenditure incurred to purchase the inventory and
transport it to its current location. Net realizable value is the estimated selling price of the inventory
in the ordinary course of business less costs necessary to make the sale. The cost of inventories
consumed during the year are recognized as an expense and included in cost of goods sold in the
Income Statement.
Significant judgements and estimates
Assessing provisions for inventory obsolescence, net realizable value and shrinkage involves making
estimates and judgements in relation to future selling prices and expected shrinkage rates between
the most recent store stock counts and balance date. Shrinkage is a reduction in inventory due to
shoplifting, employee theft, paperwork errors and supplier fraud. The Company considers a wide
range of factors, including historical data, current trends and product information from buyers, as
part of the process to determine the appropriate value of these provisions.
Goods in transit from overseas
Goods in transit from overseas are recognized when title to the goods is passed to the Group. Title
to the goods is passed when valid documents (which usually include a ‘bill of lading’) are received,
and terms, as set out in a supplier’s letter of credit or in the supplier’s terms of trade, are met
1.4 Correction of an error
During the preparation of the 2017 financial statements, it has become apparent that inventory to
the value of $6,500 that had been recognized as sold in the year ended 31 March 2016 was
incorrectly included in inventory as at 31 March 2016.
The error has been corrected by restating each of the affected financial statement line items for the
prior periods, as follows:
Reduction in retained earnings by $6,500 and increase in cost of sales by $6,500.
Net impact on profit for the year – increase by $6,500
Net impact on retained earnings for the year – No impact.

Charlie’s Toys and Equipment Limited
Notes to the Financial Statements
For the year ended on 31 March, 2017
Other financial Notes
2.1 Cost of Sales 2017 ($)
Cost of sales 821,500
Add: Freight inwards 5,000
Add: Import duties 2,000
Total 828,500
2.2 Income 2017 ($)
Cash received from hire of party equipment 50,000
Rent received from investment properties 54,000
Total 104,000
2.3 Other operating expenses 2017 ($)
Inventories write down expense 4,000
Directors’ fees 22,000
Payment to auditor's (refer note below) 55,000
Insurance 12,000
Freight outwards 4,000
Donations paid 3,000
Bad and doubtful debt expense 8,250
Loss on sale of party equipment 15,000
Total 123,250
Payment to auditor's comprises:
Audit fee 30,000
Advisory services 25,000
Payment to auditor's 55,000
2.4 Finance costs 2017 ($)
Interest paid - mortgage 33,600
Interest paid - overdraft 4,600
Dividends paid on preference shares 8,000
Total 46,200

Charlie’s Toys and Equipment Limited
Notes to the Financial Statements
For the year ended on 31 March, 2017
2.5 Property, plant and equipment
Cost Land Warehouse Party equipment
for hire Total
Value as on 1 April, 2015 100,000 320,000 520,000 940,000
Additions/(Disposals) - - - -
Closing value as on 31 March, 2016 100,000 320,000 520,000 940,000
Additions * 300,000 - 120,000 420,000
Disposals (90,000) (90,000)
Closing value as on 31 March, 2017 400,000 320,000 550,000 1,270,000
Accumulated Depreciation Land Warehouse Party equipment
for hire Total
Closing value as on 31 March, 2016 - 120,000 270,000 390,000
Charge for the year 6,400 110,000 116,400
Disposal - (35,000) (35,000)
Closing value as on 31 March, 2017 - 126,400 345,000 471,400
Net block as on 31 March, 2016 100,000 200,000 250,000 550,000
Net block as on 31 March, 2017 400,000 193,600 205,000 798,600
* Includes $100,000 on account of revaluation of Land as on 31 March, 2017.
2.6 Non-current financial assets 2017 ($) 2016 ($)
Shares in New Zealand Company 50,000 -
Total 50,000 -
2.7 Trade and other receivables 2017 ($) 2016 ($)
Accounts receivable 105,000 80,000
Allowance for doubtful debts (5,250) (2,000)
Total 99,750 78,000
Charlie’s Toys and Equipment Limited

Notes to the Financial Statements
For the year ended on 31 March, 2017
2.8 Cash and cash equivalents 2017 ($) 2016 ($)
Cash at bank - 25,000
Cash on hand 3,000 5,000
Total 3,000 30,000
2.9 Issued ordinary share capital Numbers Amount ($)
Shares as at 1 April, 2016 * 120,000 240,000
Add: Issued during the year 50,000 100,000
Shares as at 31 March, 2017 170,000 340,000
* The ordinary share capital on 1 April 2016 comprised of 120,000 ordinary shares issued at a value
of $2.00 each
2.10 Preference share capital Numbers Amount ($)
Shares as at 1 April, 2016 * 100,000 100,000
Add: Issued during the year - -
Shares as at 31 March, 2017 100,000 100,000
* The preference share capital comprises of 100,000 redeemable preference shares which were
issued for $1 each and are redeemable at par on 30 September 2021. The coupon rate of these
shares is 8% p.a.
2.11 Loan secured by mortgage 2017 ($) 2016 ($)
Loan secured by mortgage * 240,000 280,000
Current maturities (48,000) (45,000)
Total 192,000 235,000
* The new mortgage is secured over the warehouse, is fixed at 8% per annum. The old mortgage of
$280,000 has been repaid on 1 April, 2016.
2.12 Dividends on Ordinary Shares
The directors have recommend a final dividend of 10 cents per ordinary share at the annual general
meeting to be held on 20 May 2017 subject to shareholder’s approval.
2.13 Donations
In accordance with section 211(1)(h) of the Companies Act 1993, the company records that it
donated $3,000 to various charities during the year. In line with Board policy, no political
contributions were made in FY17.

Charlie’s Toys and Equipment Limited
Notes to the Financial Statements
For the year ended on 31 March, 2017
2.14 Reconciliation of net operating cash flow to profit or loss
Particulars 2017 ($)
Profit before tax from continuing operations 247,650
Loss before tax from discontinued operations (30,000)
Prior period items (6,500)
Add: Non-cash expenses
Depreciation and amortization 116,400
Bad and doubtful debt expense 8,250
Add: Expenses relating to other activities
Loss on sale of party equipment 15,000
Finance costs 46,200
Less: Gain on investment property (30,000)
Add/(less): Changes in working capital
Increase in inventories (70,250)
Increase in trade receivables (21,750)
Increase in prepayments (1,000)
Increase in trade payables 7,000
Total 311,000
2.15 Directors Remunerations
During the year, the following amounts have been paid to the directors.
Name of Director Amount ($)
John Black (managing director) 7,000
Jane Red 3,000
Carol Green 3,000
Andrew Silver 3,000
Ann Gold 3,000
Chris Brown 3,000
2.16 Earnings per share
Earnings per share = Net income / Weighted average number of ordinary shares
Earnings per share = 269,908 / (120000 + (50000/12*6))
Earnings per share = 269,908/145,000
Earnings per share = $1.86

PART-B
Ratio Calculation:
The ratio calculation of Charlie’s Toy and Equipment Limited are as below:
Sr. No. Ratio Formula 2017
i. Current ratio Current Assets/Current
Liabilities 1.00
ii. Debt to equity ratio Liabilities / Equity 0.46
iii. Times interest earned EBIT/Interest expense 7.01
iv. Average receivable collection
period
(Days * Average accounts
receivable)/credit sales 17.29
v. Return on equity ratio Net income /
shareholder's equity 28.22%
vi.
Price earnings ratio (based on CTEL
market price of $5.37 per ordinary
share as at 31 March 2017).
MPS/EPS 2.89
vii.
Dividend yield on ordinary shares
(assume no final dividend is paid for
the current year).
DPS/MPS 3.51%
Ratio Analysis:
The ratio analysis is yet another important tool under management accounting. It deals with various
aspects of financial accounting and helps in analyzing the financial information giving the bird’s eye view
of information present in financials. Thus, it helps in making financial comparison and year on year
analysis of the statements. Hence, it is an important analyzing tool for the management and potential
investors. With the help of ratio analysis, the potential investors compare the various companies and
companies performance and on the basis of this comparison, they decides as to they should invest in a
particular company or not and if they are already invested, then it helps them in analyzing whether they
should remain invested in this company or should they move on their investments. For not only potential
or current investors but also for the management ratio analysis plays a vital role. As it helps in managing
finances and liquidity, profitability and solvency position of the company.
Let’s understand some of the important ratios as per the table below and their comparison with Charlie’s
Toy and Equipment Limited and Betty’s Toys Limited.
The interpretation of the above ratios is as below:
Current Ratio – Current ratio is the main liquidity ratio and shows the relationship between current
assets and current liabilities. It shows the ability or efficiency of the company to utilize its current assets.
It is calculated as current assets divided by current liabilities. Current assets are the assets that are

realizable within a period of 12 months from the reporting date and similarly the current liabilities are
those obligations which are required to be settled with in a period of 12 months from the reporting date.
The ideal current ratio is 2:1 which means that the current assets should be twice of its current liabilities.
A ratio lower than 1:1 is a red signal for the company and means that the company’s current assets have
fallen below than the company’s current liabilities. It reflects that the company’s liquidity position is not
good and there are strong chances that the company may face liquidity issues in the upcoming time.
Similarly, a ratio of higher than 3:1 means that the company’s current assets are 3 times of its current
liabilities and shows that the company is not utilizing its current assets effectively.
In the current case, the current ratio of CTEL is 1:1 and the current ratio of BTL is 2.53:1. This means that
the current assets of CTEL are just equal to its current liabilities whereas the BTL has sufficient current
assets to pay off its current liabilities. So, the CTEL is quite low in its current ratio and it is advised to the
company to increase its current assets.
Debt to Equity Ratio – This is yet another important capital structure ratio and it defines the
debt and equity structure of the company. It is calculated as debt or total liabilities divided by
stockholder’s equity of the company. Hence, it shows the proportion of debt and equity of the company.
It is also knows as leverage ratio. Ideally a lower debt to equity ratio is preferred as it shows that the
external parties have lower stake in the company and the stakeholder’s stake is higher ("Debt to equity
ratio - explanation, formula, example and interpretation | Accounting for Management", 2018).
In the current case, the debt to equity ratio of CTEL is 0.46 whereas in BTL is 1.42. This means that in CTEL
46% stake belongs to creditors and remaining 54% stake belongs to stockholders. On the other side, in
BTL the stake of outsiders or creditors is 142% as compared to its equity stockholders. So, CTEL is
performing well in this ratio as this ratio is better if lower.
Times Interest earned – It shows the amount of income available for payment of interest
expenses and thus is calculated by dividing earnings before interest and tax or operating profits with
interest cost. It is a major solvency ratio and reflects the company’s ability to pay off the interest
expenses. Or in other words, it shows that how many times a company can pay off its interest on debt
from available operating profit. It is a major investor ratio as it helps in evaluating the company’s solvency
position. This ratio is higher the better and higher ratio shows that the company’s solvency position is less
riskier.
In the current case, the times interest earned ratio of CTEL is 7.01 whereas the times interest earned ratio
of BTL is 2.67. This means that CTEL interest expenses can be paid 7 times from its operating profits and
similarly BTL interest expense can be paid 2.67 times from its operating profits. Hence, this ratio is in
favor of CTEL.
Average Receivable collection period – This ratio shows the number of days within
which company can convert its accounts receivable in cash or the time frame within which the company’s
credit sale will be converted in cash. It is calculated by dividing the accounts receivable turnover ratio
with 365 and the accounts receivable turnover ratio is credit sales divided by average accounts
receivable. This ratio is as lower as better since lower ratio indicates that the company can convert its
accounts receivable earlier in cash (Bragg, 2018).

In the current case, the average receivable collection ratio of CTEL is 17.29 days and for BTL is 48.5 days.
This means that CTEL can collect its accounts receivable in 17.29 days and the BTL will take 48.5 days to
collect its accounts receivable. So, this ratio is again in the favor of CTEL.
Return on equity ratio – This ratio shows the return on their investment earned by the equity
shareholders and is calculated by dividing net income with shareholder’s equity. This ratio is an important
ratio for equity investors as they will choose the company which have higher return on equity. As it
indicates that they are earning more on their investment. This ratio is as higher as better.
In the current case, the return on equity ratio of CTEL is 28.22% whereas for BTL is 6.17%. This means that
the investors who have invested their money in CTEL are receiving $28.22 on their investments of $100
whereas the investors who have invested in BTL are receiving $6.17 against their investment of $100 and
hence this ratio is in favor of CTEL.
Price earnings ratio – This ratio values the company against its market price and is calculated by
dividing the market price per share with earnings per share. This ratio is also knows as price multiple ratio
as it indicates that how much dollar an investor should invest in a company to earn its earnings of $1. A
low PE ratio indicates that the company’s shares are undervalued (Staff, 2018).
In the current case, the PE ratio of CTEL is 2.89 whereas for BTL this ratio is 7.36 times. It means that the
investors of BTL are expecting higher return or earnings as compared to the investors of CTEL. Hence, this
ratio favors BTL.
Dividend Yield on ordinary shares – This ratio indicates that how much the company is
paying as dividends to its investors as compared to its earnings and is calculated by dividing the dividend
per share with earnings per share. There is no ideal ratio for this as it depends upon the company policy
for paying the profits as dividend or retaining them for future expansion ("Dividend Yield", 2018).
In the given case, the dividend yield ratio for CTEL is 3.51% and for BTL is 8.3%. It means that CTEL is
paying 3.51% of its profits as dividend whereas the BTL is paying 8.3% of its profits as dividend.

References:
Debt to equity ratio - explanation, formula, example and interpretation | Accounting for
Management. (2018). Retrieved from
https://www.accountingformanagement.org/debt-to-equity-ratio/
Dividend Yield. (2018). Retrieved from
https://www.investopedia.com/terms/d/dividendyield.asp
Staff, I. (2018). Price-Earnings Ratio - P/E Ratio. Retrieved from
https://www.investopedia.com/terms/p/price-earningsratio.asp
Bragg, S. (2018). Accounts receivable collection period | Days sales outstanding. Retrieved
from https://www.accountingtools.com/articles/2017/5/13/accounts-receivable-
collection-period-days-sales-outstanding