FINANCIAL

ACCOUNTING
Name: Sonam Wangchuk
Index no.: 12190026
Class: BSc Cs
Module: ACC201
Tutor: Ms. Kuenga Lhaden
Year: 2nd year
 Sherza Ventures Limited

Vision

To be the best E–commerce and Brick and Mortar store business in the country.

Mission

To create sustainable and viable business Eco–system among customers, employees and producers;
Help import substitution for the country;
Take brand Bhutan products in the international market.

Product Overview

The company deals in retail, wholesale, E-commerce business and raw material supply. It
operates retail stores under the name Sherza Allstore (currently located at olakha and lower
market (sabji Bazaar) Thimphu.
To create an experience for the customers to shop anytime, anywhere and deliver exactly
what they want online shopping platforms are created. Online shopping can be done at
www.sherza.bt. Apps (Allstore Ecosystem) are available for online shopping both on android
and IOS. Online shopping is currently available in Thimphu only. To cater to the retailers, the
company deals in wholesale supply of groceries and other essential commodities.

Director’s report

May 30, 2020

Dear Shareholders,

Before I welcome you all to the AGM, I on behalf of Sherza Family and on my behalf would
like to convey our heartfelt gratitude and sincere prayers to His Majesty the King for your
selfless efforts to safeguard us from the Novel Corona virus. Blessed are we to be born under
the leadership of a Dharma King. I would also like to sincerely thank the prime minister, the
government and everyone at the frontline working hard to keep everyone safe. It gives me
immense pleasure to welcome all the shareholders of Sherza Ventures Limited to the first
Annual General Meeting and present to you the Director’s Report for the year 2020 on behalf
of the board of directors and the management and staff of SVL. Thank you for taking out
time to attend the meeting amidst the Corona Virus situation around.

Operational Highlights

SVL was incorporated under the Companies Act of Kingdom of Bhutan 2000, on June
11, 2015 and the shares are listed on the stock exchange (RSEBL), The company started
with an initial paid up capital of 30 Million, in a matter of only 3 months of business
operation, 2019 has been a year of many significant achievements for our small and
growing company,
SVL released its first Corporate Strategic Plan 2020-2024 and roadmap of Sherza
Ventures Limited (SVL) for next five years, the strategic plan is based primarily on the
framework of balanced scorecard and other best practices prevalent in the current
scenario, the successful implementation of the strategy, programs and initiatives outlined
in the strategic plan are expected to sustain growth and development in the SVL beyond
2024.

Internal Processes

The management has put in place strategies and key initiatives to improve operational
activities, these initiatives are explained below;
Revision of Service Rules and Regulations (SRR) was initiated with an objective of
strengthening the institutional capacity and streamlining HR processes that will enhance
the productivity and performance of the company, the revised SRR will come into effect
by end of 1st quarter,

Along with it, the newly introduced Performance Management System (PMS) will be
strictly implemented, The PMS was developed jointly by a local management consultant
and SVL core team using the balanced scorecard (BSC) framework,

New POS machines and feedbacks boxes were installed at the retail stores to enhance
overall customer services.
 Human Resources

SVL has 34 staffs, the management had given unwavering support to strengthen the
human resource development, In-house professional and relevant trainings were given to
the employees.

Financial Performance Highlights

Income and Expenditure

SVL achieved revenue of Nu.76.85 Million from primary operation of business and Nu.6.00
Million from other sources, making total turnover of Nu.82.85 Million during the year 2019.
The company earned gross profit margin of 9.76% amounting to Nu.7.50 Million and net loss
of Nu.2.61 million that is 3.15% of the total turnover. However, there is a cash profit of
Nu.0.10 Million during this year. The overall loss was mainly due to the company’s shift in
business nature from construction, transportation and non-consumable supplies in the past
years to retail and online business where the industry margin is very low.

However, there is a considerable achievement on the ground work in terms of market entry,
customer accusation and creating a value chain. The company looks forward to making
profits in the following years by increasing market share and improving economy, efficiency
and effectiveness of the operation of the company. Shareholders may also like to note that
comparison of the performance of the previous year is not made due to shift in business of the
company in 2019.

The company was listed with RSEBL during the year, SVL raised additional capital through
IPO in 2019. The total share capital has increase to Nu.186.83 Million from Nu.30 Million in
2018. The increase in capital pertains to public equity and revaluations of fixed assets.
Similarly, fixed asset of the company increased fronmNu.22.29 to Nu.83.44 Million.

Statutory Audit Report

Tshechu and Associates was appointed as the statutory auditors, the firm audited the
accounts in accordance with the International Standards on Auditing (ISAs) and relevant
provisions of The Companies Act of the Kingdom of Bhutan 2016, The statutory
Auditors' Report consists of Statement of Financial Position, statement of
Comprehensive Income, Statement of Change in Equity and statement of cash flow for
the year ended 31st December 2019.
Corporate Governance

The mission, Vision and the core values guide SVL to sought out new frontiers and improve
existing services. The company is strongly committed to business ethics and values and
committed to uphold shareholder’s value.

The SVL board constitutes of six board members. The main function of the Board is to
provide strategic guidance and monitor the performance of the company. In 2019, the Board
met twice to review the company’s performance and provide strategic guidance.

Challenges and Way Forward

COVID-19, novel corona virus pandemic has impacted negatively on the global economic.
The economic damage caused by the pandemic is largely driven by a fall in the demand,
meaning that there are no consumers to buy the goods and services available in the market,
Reduction in consumer demand causes to lose planned revenue, and SVL has been no
exception. Despite the clear danger that the country economy is in, there are reasons and SVL
remains hopeful that the worst-case scenario can be avoided. The reasons are increase in the
number of E-commerce customers and rise in the food retail sale.

SVL management is taking steps to minimize the impact of the pandemic by controlling
expenses, diversifying the nature of business and refining internal processes. We will
continue to work hard to provide efficient customer services.

Acknowledgement

On behalf of the Board of directors and the management, I would like to express my sincere
appreciation to the Royal Government and its various agencies, regulators, relevant
stakeholders, shareholders and our valued customers for your support and good wishes.
Sincerely
Jigme Drukpa
Chairman
Sherza Ventures Limited
 Shares of the Company

Since the company was established based on the money given by people that is people has
provided money to the company for establishing it business. Therefore, the number of
shareholders for the company is said to be more than 4000 people.

Independent Auditor’s Report

To

The Shareholders of Sherza Venture Limited

Report on the Audit of the Financial Statements

Qualified Opinion

We have audited the financial statements of Sherza Ventures Limited, which comprise the
Statement of Financial Position as at December 31, 2019 and the statement of comprehensive
income, statement of changes in equity and statement of cash flow for the year the ended, and
notes to the financial statements, including a summary of significant accounting policies.

In our opinion, expect for the effect of the matter described in the Basis for Qualified Opinion
section of our report, the accompanying financial statements present fairly, in all material
respect, (or give a true and fair view) the financial position of the company as at December
31, 2019, and of its financial performance and its cash flows for the year then ended in
accordance with Bhutanese Accounting Standards (BAS).

Basis for Qualified Opinion

1. The company's inventories are carried in the Statement of Financial Position at

Nu.14,722,624.86. Management has not stated the inventories at the lower of cost and
net realizable value but has incorporated the figures from Inventory System where
quantities of some of the items are in negative figures, which constitute a departure
from BAS.

2. The Management has recognized a gain of Nu.832,000.00 from sale of vehicle in

prior period in the Statement of Comprehensive Income of current period. This would
 impact the profitability of the Company for the period.

3. Non availability of confirmation of the existence and values of various receivables

and payables, which may have financial impact on the profitability and financial
position of the Company.

4. The Management has corrected prior period errors in the financial statements of
current period, which contravenes the requirement of BAS. A prior period error are
required to be corrected by retrospective restatement except to the extent that it is
impracticable to determine either the period-specific effects or the cumulative effect
of the error. In such cases, the Company is required to restate the opening balances of
assets, liabilities and equity for the earliest period for which retrospective restatement
is practicable.

5. The expenses directly related to IPO arc not written off against the Share Premium as
per the requirement of Companies Act of Bhutan 2016 and BAS.

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our
responsibilities under those Standards are further described in the Auditor's Responsibilities
for the audit of the Financial Statements section of our report. We are independent of thy
Company in accordance with the International Ethics Standard Board for Accountants' Code
for Ethics for Professional Accountants (II SBA Code) together with the ethical requirements
that are relevant to our audit of the financial statements in Bhutan and we have fulfilled our
other ethical responsibilities in accordance with these requirements and of the IESBA Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most
significant in our audit of the financial statements of the current period. These matters were
addressed in the context of our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters. In addition to
the matter described in the Basis for Qualified Opinion section we have determined the
matters described below to be the key audit matters to be communicated in our report.

a. The authorized share capital of the Company is Nu. 400 million (40,000,000 equity
shares @ Nu. 10 per share) and as on the report date, the total paid up capital is Nu.
169.07 million of 16,907,221 equity shares (@ Nu. 10 per share. A sum of Nu.
76.476 million in equity (including Nu. 17.763 million on account of share premium
 on shares 5,921,257 shares at Nu. 3 per share) was raised from the capital market.
The balance paid up capital consist of the following which are not presented in detail
in the Statement of Changes in Equity:
a. The paid-up capital along with the retained earnings amounting Nu. 46,873,081.74
as on 31.12.2018 was converted to equity shares before offering additional shares to
the public.
b. The company revalued its PAO plots of land located at Phuentsholing. Chukha
during the year. The additional value of assets of Nu. 60.95 million upon revaluation
was allotted as an equity shares to two major shareholders who owns 63.75% of the
total company.
c. The shares worth of Nu.2,031,544.00 was sold to private individual prior to raising
capital from capital market.

Responsibilities of Management and those charged with Governance for the Financial
Statements

Management is responsible for the preparation and fair presentation of the financial
statements in accordance with Bhutanese Accounting Standards (BAS), and for such internal
control as management determines is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company's
ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to
liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company's financial
reporting process.

Auditors' Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements, as a
whole are free from material misstatements, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain
professional skepticism throughout the audit. We enclose in Exhibit-I, the description of the
auditor's responsibilities.
Report on Other Legal and Regulatory Requirements

As required under Section 266 of the Companies Act of Bhutan, 2016, we enclose in the
Exhibit-II, a statement on the 'Minimum Audit Examination and Reporting Requirements to
the extent applicable to the company.

Further, as required by Section 265 of the Act, we report that:

a) We have obtained all information and explanations which to the best of our
knowledge and behalf, were necessary for the purpose of our audit;
b) In our opinion, proper books of accounts as required by law have been kept by the
Company so far as it appears from our examination of those books;
c) The Company's Statement of Financial Position, the Statement of Comprehensive
Income, the Statement of Changes in Equity and the Statement of Cash Flows dealt
with by this report are in agreement with the books of accounts; and
d) The Company has complied with other legal and regulatory requirements to the
extent applicable to the company.
 Sherza Ventures Ltd
Statement of comprehensive income
For the year ended 31 December 2019

2019 2018 (reinstated)

Particulars Notes Nu Nu
Revenue 13 76,850,586.35 78,179,787.01
Cost of sales 14 (69,348,658.66) (32,369,900.63)
Gross profit 7,501,927.69 45,809,886.38

Other income 15 6,005,812.84 6,097,021.83

Direct expenses 16 (1,664,550.79) (34,452,912.79)
Employees’ salaries and benefits 17 (4,593,639.38) (4,387,509.00)
General administrative expenses 18 (5,385,929.07) (4,544,359.68)
Depreciation and amortisation expense 7 (2,708,421.19) (2,570,171.37)
Other expenses
Profit from operations (844,799.90) 5,951,955.37

Finance costs 19 (1,770,496.13) (3,609,372.59)

Finance income (445.67)
Profit before tax (2,615,296.03) 2,342,137.11
Income tax expenses (1,695,694.62)
Profit for the year (2,615,296.03) 646,442.49

Other comprehensive income I (expenses)

Total other comprehensive income
Total comprehensive income for the year
(2,615,296.03) 646,442.49
net of tax

2.15
Earnings Per Share (11.52)
 Sherza Ventures Ltd
Statement of Financial Position
As at 31 December 2019

2019 2018 As at 1 January

(figures 2018
ASSETS Note Nu Nu
reinstated) Nu
Current Assets
Cash and cash equivalents 4 38,160,553.98 3,847,136.16 5,798,717.07
Trade and other receivables 5 66,456,658.03 40,601,896.94 58.005,87495
Inventories 6 14,722,624.86 9,224,490.70 4,011,933.10
Total Current Assets 119,339,836.87 53 673,523.80 67,816 525.12
Non-Current Assets
Property, plant and equipment’s 7 83,443,489.84 22,291,618.63 44 144 659.95
Total Non-Current Assets 83,443,489.84 22,291,618.63 44,144,659.95
TOTAL ASSETS 202,783,326.71 75,965,142.43 111,961,185.07
LIABILITIES AND EQUITY
Current Liabilities
Loans and borrowings 8 9,338,792.02 4,875,544.97 31,735,634.57
Trade and other payables 9 4,439,807.33 7,136,490.50 14,571,367.84
Other payable 10 7,559,253.87
Dial Current Liabilities 13 778,599.35 19,571,289.34 46,307 002.41
Non-Current Liabilities
Loans and borrowings II 3,112,452.34 7,825,076.74 16,895,608.84
Provisions on tax 12 1,671,590.05 1,695,694.62 2,593,472.59
Total Non-Current Liabilities 4,784,042.39 9,520,771.36 19,489,081.43
TOTAL LIABILITIES 18 562,641.74 29,092,060.70 65,796,083.84
NET ASSETS 184,220,684.97 46 873,081.73 46,165,101.23

Share capital 186,835,981.00 30,000,000.00 30,000,000.00

Retained earnings (2,615,296.03) 16,873,081.73 16,165,101.23
TOTAL EQUITY 184 220,684.97 46,873.081.73 46,165,101.23

TOTAL LIABILITIES AND

202 783,326.71 75,965,142.43 111,961,185.07
EQUITY
 Sherza Ventures Ltd
Statement of Cash Flow
For the year ended 31 December 2019

Note 2019 2018 (reinstated)

Nu Nu
Cash flows from operating activities
Profit before tax (2,615,296.03) 646,442.49
Adjustment for:
Provision for corporate income tax 1,695,694.62
Depreciation of property, plant & equipment 2,708,421.19 2,570,171.37
Finance Expense 1 770 496.13 3,609 372.59
Operating profit before changes in operating assets
& liabilities 1,863,621.29 8,521,681.07
(Increase)/Decrease in operating assets
Trade and other receivables (25,854,761.09) 5,757,646.04
Inventories (5,498.134.16) (5.212.557.60)
Other assets 19,224,575.00
Increase/(Decrease) in operating liabilities
Trade and other payables (2,696,683.17) (34,313,957.06)
Other liabilities (7,559,253.87)
Net cash flow from operating activities before
income tax (39,745,211.00) (6,022,612.55)
Income tax paid (24,104.57) (2,593.472.59)
Net cash flow from operating activities A (39,769,315.57) (8,616,085.14)
Cash flow from Investing activities
Sale of fixed assets 20,731,591.94
Purchase of property & equipment (2,911,299.40) (1,448,722.00)
Net cash flow from Investing activities B (2,911,299.40) 19 282,869.94
Cash flow from financing activities
Borrowings during the year (249,377.35) (9,070,532.10)
Borrowings expenses (1,770.496.13) (3.609.372.59)
Equity injection 79.013,907.24
Adjustments in reserves 61,538.01
Net cash flow from financing activities C 76,994,033.76 (12,618,366.68)
Net increase/(decrease) in cash and cash equivalents +b+ 34,313,418.79 (1,951,581.88)
Cash and cash equivalents at the beginning of the year 3,847,135.19 5,798,717.07
Cash and cash equivalents at the end of the year 38,160,553.98 3,847,135.19
 SHERZA VENTURE LIMITED
THIMPHU, BHUTAN
RATIO ANALYSIS

Analyses of important ratio during last two financial years are furnished below:

SI.
Significant Ratios 2019 2018 Remarks
No.

I. Liquidity Ratios

1.1 Current Ratio 7.16:1.00 33.36:1.00 Ratio as stated is more than

acceptable norms i.e. 2:1 the
Current Assets / Current Liabilities
same has increased as

compared to last year. This is

due to increase in
current
assets.
1.2 Quick Ratio 6.39:1.00 2.69:1.00 The Ratio has increased

Current Assets- because of increase in Cash & Cash

Equivalents.
Inventories / Current Liabilities

2. Turnover Ratios 2019 Remarks

2.1 202.9
Debtors Turnover
6
(Collection period) days

(Debtors• 365 / Credit Sales)

2.2 26 days
Creditors Turnover

(Creditors '365 / Credit Purchase)

3. Profitability Ratios 2019 2018 Remarks

3.1 Profitability Ratio Ratios have decreased as

(Profit before tax -2.42% 3.10% compared to last year due to
•100/Sales) decreased in turnover and
increase in expenses
3.2 Return on Investment
(Profit before Tax •100/ -0.91% 3.42%
Total Assets)

3.3 Return on Equity

(Profit after tax • 1001 -1.00% 2.15%
Equity Capital)

THANK YOU