RECTANGLE PHARMACEUTICALS LTD.

Act 330 Group Assignment 3 June 26TH, 2011

Prepared By Zeeshan Rahman Mohiuddin Miraz A.K.M Sharfuddin Chowdhury Taslima Chowdhury Mumu Prepared For RKB Section 1 Lecturer Department: School of Business 0930194530 0930424530 0930250530 0710719030

1. Company Name
- Rectangle Pharmaceuticals Limited

2. Industry
-Pharmaceuticals Industry

3. Company Location
-Plant (Gazipur) -Headquarter (Uttara Sector 3, House 22)

4. Products
The name Rectangle Pharmaceuticals assures you of many things: outstanding product quality, leading-edge technology, advanced new products, and a commitment to serve the medical community.

Our products come in a wide range of dosage forms including tablets, capsules, dry syrup, powder for suspension, cream, ointment, suppositories, metered dose nasal sprays, large volume intravenous fluids, metered dose inhalers etc. ensuring the global standard of quality.

5. Company Background
A) .No. of employees 125 (Plant and Office) B) .No. of departments and their functions in brief

Research and Development: The Research and Development department determines and identifies drug candidates. In R&D department, there are three functional areas. They are discovery research, animal sciences and bioinformatics. Operations: The Operations department produces a saleable amount of a drug. Once a drug has passed the clinical trials, the manufacturing and production department manufacture the final product, along with the packaging and labeling. Also housed under the operations umbrella is the environmental health and safety function, which assesses the environmental impact of a potential product. Quality: There are various rules and safety regulations laid down by the FDA for pharmaceuticals and biotech firms. If found guilty for drug contamination then the FDA may close the manufacturing plant of the firm. The Quality department of the pharmaceutical firm also ensures that the firm is adhering to government regulations. There are different groups which concentrate on functions like assurance, quality control as well as validation. These groups ensure that the drugs manufactured are accurate, and of a reliable standard of quality. Finance and Administration: The Finance and Administration department comprises different functional areas including finance, administration, legal and information systems. Responsibilities include managing activities related to finance management, handling legal relations with employees, investors, creditors as well as government regulators. Marketing The marketing department recognizes potential fresh coalition partners and also handles previous alliances. They are responsible for market research, recognizing potential customers and

preparing the promotion and pricing strategy. They also handle the distribution of the finished products. Project Management: Most of the pharmaceutical companies have a separate project management department. This department is responsible for coordinating the functions of all departments and also ensures smooth and efficient functioning. The Project management department also monitors particular projects.

6. Company Financial Policy:

The company will BAS , and IAS in recording the day to day transactions and financial statements The company will follow straight line depreciation methods to depreciate its assets and has no salvage value. The company will make appropriate investments (machinery and large scale production) that maximize future cash flows and facilitate efficient operations. The CEO and CFO is responsible for taking decision about taking loan from the bank The CEO , CFO and the Financial executive can take decisions for further investments(leasing and purchase of assets) and the all cheques must be signed by the CEO , CFO and Financial executive The CFO and Financial executive will develop the budget of the company and the CEO will approve. But at first the budget must be checked by the auditor Some common reserve funds are 'rainy day', sinking funds , legal liability, research and development, equipment and software acquisition, building maintenance or acquisition(In the coming future ) At the end of every year a financial audit procedure must be performed Financial Statement will be prepared at the end of each financial year

Accounts Receivables Policy

The following is the practice used to collect general accounts receivable:

1. CURRENT ACCOUNTS: At the end of each month statements are mailed to each owner with an outstanding balance.

2. 30 DAYS PAST DUE: If the account is not paid in full in 30 days a collection letter requiring payment in full is sent to the owner along with a new statement of account.

3. 60 DAYS PAST DUE: If the account is not paid in full in 60 days, a final collection letter stating that they will be turned over to our attorney for legal proceedings is sent with a copy of the current statement of account.

4. 90 DAYS PAST DUE: If the account is not paid in 90 days the administrative staff attempts to contact the member by telephone. At that point a decision is made as to whether the account should be turned over to the attorney for collection proceedings and whether or not a lien should be filed against the member.

Bad Debt Policy

Authority to Write-off The Board of Directors has sole authority to write off uncollectible debts unless the amount is more than BDT100, 000. Written off amounts of more than BDT100,00 will be referred to AGM for approval.

Considered factors for write-off debts 1. Debt has been inactive for 6 or more years and all avenues have been exhausted by management to collect the outstanding debt. 2. Debtor has passed away. 3. The corporation has shut down.

Top Level Management CEO (Mohiuddin Miraz) CFO(Zeeshan Rahman) Financial Executive(Taslima Chowdhury) Director(AKM Sharfuddin)
Middle Level Management Operation Manager HR Manager FinanceManager Marketing Manager Distribution Manager Front Line (Supervisory Level) Management Factory Manager Sr. Factory Supervisor

Other Production Departmental Supervisors

Bond Adjustments
Account Name 1. April 1 , 2005 Cash (2400 interest + Book value of bond =102,335 Discount on bonds payable Bonds payable Bonds interest expense (120,000 x 8 %= 9600 ; 9600/2 = 4800 Tk semi annually so for 3 months, 4800/6 x 3 = 2400Tk 2. June 30 , 2005 6140 17665 120,000 2,400 Debit(BDT) 104,735 Credit(BDT)

Bonds interest expense (carrying value of April 1 , 2005 = 104,735 x 12% / 2) Bonds interest payable Discount on bonds payable 3. July 1 2005 Bonds interest payable Cash (interest on bonds paid on July 1 ) 4800 4800 4,800 1,340

Schedule of Bonds discount amortization Effective interest rate method 5 years , 8% bonds sold to yield 12 %

Date 1/4/2005 1/7/2005 1/1/2006 1/7/2006 1/1/2007 1/7/2007 1/1/2008 1/7/2008 1/1/2009 1/7/2009 1/1/2010

cash paid Int exp

Discount carrying value of amortization bonds(BDT )

102,335
1340.1 1420.50 1505.74 1596.08 1691.85 1793.36 1901 2015.02 2136 2265.34 103,675.1 105095.60 106601.35 108197.43 109889.28 111682.64 113583.64 115598.66 117734.66 120000

4800 4800 4800 4800 4800 4800 4800 4800 4800 4800

6140.1 6220.50 6305.74 6396.08 6491.85 6593.36 6700.96 6815.02 6936 7064.08

Leasing: Capital Leasing Method

Account Name Oct 1 , 2005 Leased Asset(Office Floor) Lease Liability 300,000 300,000 Debit(BDT) Credit(BDT)

Lease Payment Executory Cost Cash

45,000 5,000 50,000

Rectangle Pharmaceutical LTD has taken a office floor lease for 5 year period and the terms and provisions of the lease agreement, and other pertinent data, are as follows. The term of the lease is five years and the lease payment rate is 12% per year. The lease agreement is non-cancelable, requiring equal rental payments of BDT 50,000 at the middle of each year (annuity due basis). The office floor has a fair value at the inception of the lease of BDT300,000 Rectangle Pharma. pays all of the executary cost of BDT5,000

. Lease Amortizing Schedule:

The term of the lease is five years. The lease agreement is noncancelable, requiring equal rental payments of $ 50000 at the beginning of each year (annuity due). Fair value of the lease is $300000 Estimated economic life of five years, and no residual value. The executor cost is $ 5000 per year. The lease contains no renewal options. The interest rate is 12%.

Lease Amortization Schedule(Annuity- Due Basis)

Date Annual Lease Payments
50000 50000 50000 50000 50000 250000

Executory cost
5000 5000 5000 5000 5000 25000

Interest (12%) on liability

-016401.69 12969.89 9126.27 4821.432 43319.28

Reduction of lease liability

$ 45000 28598.31 32030.11 35873.73 40178.6 181680.75

Lease Liability
$181680.75 136680.75 108082.44 76052.33 40178.6 -0-

1/1/05 1/1/05 1/1/06 1/1/07 1/1/08 1/1/09

Depreciation: (Straight Line Method)

Fixed Asset Worth Depreciation Expense for (2005) 300,000 300,000 50,000 200,000 20,000 Net Book Value for (2005) 2,700,000 2,700,000 450,000 1,800,000 180,000 Depreciation Expense for (2006) 300,000 300,000 50,000 200,000 20,000 Net Book Value for (2006) 2,400,000 2,400,000 400,000 1,600,000 160,000

Plant Premises Machinery Fixture and Fittings Motor Vehicle Computer System

3,000,000 3,000,000 500,000 2,000,000 200,000

Rectangle Pharmaceutical LTD. depreciation policy are as follows: The company uses straight line method to depreciate their assets. The companys all fixed assets estimated useful life is 10years. They dont have any estimated salvage value for their fixed assets.

Income Statement For the year ended 2005 and 2006

Details: Sales Less: COGS Gross Profit Operating Expenses: Salaries Utilities Telephone charges Advertising Lease Payment Executory Cost Insurance Expense Depreciation Sales & Marketing R&D Finance Dept Total Operating Expense EBIT Bond Interest expense Taxation Net Income (2,707,470) (2,092,166) (2,701330) (6140) (2,079,640) (12,526) 900,000 400,000 130,000 400,000 45,000 5000 100,000 870,000 150,000 150,000 50,000 3,200,000 1,000,000 350,000 100,000 500,000 45,000 5000 100,000 870,000 100,000 200,000 100,000 3,270,000 Year-2005 1,439,850 941,180 498,670 Year- 2006 2,159,775 969,415 1,190,360

***Loss Decreased by BDT 615304 in the year 2006 ***Expecting to reach break even in the 4th year of operation

Balance Sheet as at 2005 and 2006

Asset Current Assets: Inventory Accounts Receivable Cash in Hand Prepaid Insurance Total Current Asset Fixed Assets: Machinery Plant Premises Motor Vehicles Leased Asset Fixtures and Furniture Computer Total Fixed Assets Less: Accumulated Depreciation Net Fixed Assets Total Assets 2005 58,640 300,000 1,473,890 100,000 1,917,885 2006 89,225 500,000 1,082,139 0 1,671,364

3,000,000 3,000,000 2,000,000 300,000 500,000 200,000 9,000,000 (870,000) 8,130,000 10,062,530

2,700,000 2,700,000 1,800,000 250,000 450,000 180,000 8,080,000 (870,000) 7,210,000 8,881,364

Current Liability: Accounts Payable Total Current Liabilities Long Term Liability Bond Payable Lease Liability Total Liabilities

700,000 700,000

1,100,000 1,100,000

120,000 300,000 1,120,000

120,000 250,000 1,470,000

Owner's Equity Share Capital(50000 Issued) Capital Premium on Shares Retained Earnings Net Loss

1,500,000 10,000,000 150,000 (2,707,470)

2,010,000 10,000,000 201,000 (2,092,166) Last years loss (2,707,470) 8,881,364

Total Owner's Equity and liabilities

10,062,530

Statement of Cash Flow for the year ended 2005 and 2006
2005 Cash Flow from operating activities Net Income Adjustment to reconcile net income to net cash provided by operating activities: (+)Depreciation Expense Account Receivable Inventories Prepaid Insurance Accounts Payable Net cash used by operating activities Cash flow from Investing Activities Purchase of Machinery Purchase of Plant Premises Purchase of Fixture Purchase of Motor Vehicle Purchase of Computer Net Cash used by investing activities Cash flow from Financing Activities: Common Stock Bond Issued Capital Net Cash Provided by Financing Activities Net Increase in Cash in 2005 Net Decrease in Cash in 2006 1,650,000 120,000 10,000,000 11,770,000 1,473,890 (1,861,166) 561,000 (3,000,000) (3,000,000) (500,000) (2,000,000) (200,000) (8,700,000) 870,000 (300,000) (58,640) (100,000) 700,000 (1,596,110) 920,000 (200,000) (10,00,000) 100,000 (100,000) (2,422,166) (2,707,470)
(2,142,166)

2006