You are a manager in SJS & Co$.$ One of your audit clients is ABC Plc which operates commercial real estate properties typically comprising several floors of retail units and leisure facilities such as cinemas and health clubs, which are rented out to provide rental income.

Your firm has just been approached to provide an additional engagement for ABC Plc$,$ to review and provide a report on the company$$s business plan, including forecast financial statements for the $12-$month period to $31$ May $2013.$ ABC Plc is in the process of negotiating a new bank loan of Tshs$\mathrm{.}30$ million and the report on the business plan is at the request of the bank. It is anticipated that the loan would be advanced in August $2012$ and would carry an interest rate of $4\%.$ The report would be provided by your firm$$s business advisory department and a second partner review will be conducted which will reduce any threat to objectivity to an acceptable level.

Extracts from the forecast financial statements included in the business plan are given below:

Statement of comprehensive income $($extract$)$

Note Forecast

$12$ months to $31$ May $2013$ Unaudited

$12$ months to $31$ May $2012$

$000000$

Revenue $25,000\mathrm{.}0020,600\mathrm{.}00$

Operating expenses $16,550\mathrm{.}0014,420\mathrm{.}00$

Operating profit $8,450\mathrm{.}006,180\mathrm{.}00$

Profit on disposal of beak rattail $14,720\mathrm{.}00-$

Finance costs $(2,650\mathrm{.}00)(1,690\mathrm{.}00)$

Profits before tax $10,520\mathrm{.}004,490\mathrm{.}00$

Statement of financial position

Note Forecast

$12$ months to $31$ May $2013$ Unaudited

$12$ months to $31$ May $2012$

Assets Tshs$.000$ Tshs$.000$

Non $$ current assets

Property, plant & equipment $2330,150\mathrm{.}00293,000\mathrm{.}00$

Current assets

Inventory $500\mathrm{.}00450\mathrm{.}00$

Receivables $3,600\mathrm{.}003,300\mathrm{.}00$

Cash and Cash equivalents $2,250\mathrm{.}003,750\mathrm{.}00$

$6,350\mathrm{.}007,500\mathrm{.}00$

Total assets $336,500\mathrm{.}00300,500\mathrm{.}00$

Equity and Liabilities

Equity

Share capital $105,000\mathrm{.}00100,000\mathrm{.}00$

Retained earnings $93,400\mathrm{.}0092,600\mathrm{.}00$

Total equity $198,400\mathrm{.}00192,600\mathrm{.}00$

Non $$ current liabilities

Long $$ term Borrowings $82,500\mathrm{.}0052,500\mathrm{.}00$

Deferred tax $50,000\mathrm{.}0050,000\mathrm{.}00$

Current liabilities

Trade payables $5,600\mathrm{.}005,400\mathrm{.}00$

Total liabilities $138,100\mathrm{.}00107,900\mathrm{.}00$

Total Equity and Liabilities $336,500\mathrm{.}00300,500\mathrm{.}00$

Notes:

$1.$ Beak Retail is a retail park which is underperforming. Its sale is currently being negotiated, and is expected to take place in September $2012.$

$2.$ ABC Plc is planning to invest the cash raised from the bank loan in a new retail and leisure park which is being developed jointly with another company, Kestrel Co$.$

Required:

In respect of the engagement to provide a report on ABC Plc$$s business plan:

i$.$ In point form, identify and explain the matters that should be considered in agreeing the terms of the engagement; and $(7$ marks$)$

ii$.$ In point form, recommend the procedures that should be performed in order to examine and report on the forecast financial statements of ABC Plc for the year to $31$ May $2013.(13$ marks$)$