SETTING-UP THE BUSINESS

Pre-Operations: Seven (7) USeP students decided to be in the production of flavored banana chips under a sole
proprietorship (of one of the students) as their project for their course. They all agreed to put-up P500,000 each for the
project. To start with, they listed below their plans prior to start of operations:

 Acquire land with an existing factory building (zero estimated value) at a cost of P500,000.
 The building, however, requires some repairs that will cost them P250,000 and will be paid in cash. This building is
expected to have a useful life of 15 years.
 Various machineries and equipment that may be acquired locally will cost them P400,000. Seventy five (75%)
percent will be bought on credit and will be paid over 3 years. These equipment are expected to have a useful life of
7 years; the remaining 25% will be paid in cash and will have a life of only 3 years. Additional machineries worth
P200,000, with useful life of 3 years, will be acquired at the start of the third year of operation.
 Furniture & fixtures worth P50,000 will have a useful life of 3 years and will be paid in cash.
 A second hand delivery van (multicab) will be acquired at a cost of P300,000 in cash with an estimated useful life of
5 years.
 Market research and business plan preparation will cost them P100,000.
 Processing their incorporation papers will cost them P30,000.
 They are not sure about their cost estimates for operations, so they plan to put-up some P500,000 under
contingency fund as their additional equity.
 Initial inventory of various raw materials worth P50,000 will be purchased in cash prior to start of operations.

Prepare the Pre-Operations Financial Statements.

SETTING-UP THE BUSINESS

Pre-Operations: Seven (7) USeP students decided to be in the production of flavored banana chips under a sole
proprietorship (of one of the students) as their project for their course. They all agreed to put-up P500,000 each for the
project. To start with, they listed below their plans prior to start of operations:

 Acquire land with an existing factory building (zero estimated value) at a cost of P500,000.
 The building, however, requires some repairs that will cost them P250,000 and will be paid in cash. This building is
expected to have a useful life of 15 years.
 Various machineries and equipment that may be acquired locally will cost them P400,000. Seventy five (75%)
percent will be bought on credit and will be paid over 3 years. These equipment are expected to have a useful life of
7 years; the remaining 25% will be paid in cash and will have a life of only 3 years. Additional machineries worth
P200,000, with useful life of 3 years, will be acquired at the start of the third year of operation.
 Furniture & fixtures worth P50,000 will have a useful life of 3 years and will be paid in cash.
 A second hand delivery van (multicab) will be acquired at a cost of P300,000 in cash with an estimated useful life of
5 years.
 Market research and business plan preparation will cost them P100,000.
 Processing their incorporation papers will cost them P30,000.
 They are not sure about their cost estimates for operations, so they plan to put-up some P500,000 under
contingency fund as their additional equity.
 Initial inventory of various raw materials worth P50,000 will be purchased in cash prior to start of operations.

Prepare the Pre-Operations Financial Statements.