SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|12 Months Ended|
Mar. 31, 2012
|Notes to Financial Statements|
|SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES||
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Profire Energy, Inc. and Subsidiary (the Company) is presented to assist in understanding the Companys financial statements. The Companys accounting policies conform to accounting principles generally accepted in the United States of America (US GAAP). On September 30, 2008, The Flooring Zone, Inc. (the Parent) entered into an Acquisition Agreement with Profire Combustion, Inc. and the Shareholders of Profire Combustion, Inc. (the Subsidiary), subject to customary closing conditions. All conditions for closing were satisfied or waived and the transaction closed on October 9, 2008.
Pursuant to the terms and conditions of the Acquisition Agreement, 35,000,000 shares of restricted common stock of the Company were issued to the three shareholders of Profire Combustion, Inc., in exchange for all of the issued and outstanding shares of the Subsidiary. As a result of the transaction, Profire Combustion, Inc. became a wholly-owned subsidiary of the Parent and the shareholders of the Subsidiary became the controlling shareholders of the Company. For accounting purposes, the Subsidiary is considered the accounting acquirer, and the historical Balance Sheets, Statements of Operations and Other Comprehensive Income, and Statement of Cash Flow of the Subsidiary are presented as those of the Company. The historical equity information is that of Profire Combustion, Inc., the accounting acquiree. The recapitalization required pursuant to this merger resulted in a negative additional paid-in capital balance.
Organization and Line of Business
The Parent was incorporated on May 5, 2003 in the State of Nevada. The Subsidiary was incorporated on March 6, 2002 in the province of Alberta, Canada.
The Company provides products and services for burners and heaters for the oil and gas extraction industry in the Canadian and US markets.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reportable amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Basic Earnings Per Share
The computation of basic earnings per share of common stock is based on the weighted average number of shares outstanding during the periods presented. The computation of fully diluted earnings per share includes common stock equivalents outstanding at the balance sheet date. The Company had 218,238 and 107,333 stock options included in the fully diluted earnings per share as of March 31, 2012 and 2011 respectively. Basic earnings per share for the years ended March 31, 2012 and 2011 are as follows:
Foreign Currency and Comprehensive Income
The Companys functional currency is the Canadian Dollar (CAD). The financial statements of the Company were translated to U.S. Dollars (USD) using year-end exchange rates for the balance sheet, and average exchange rates for the statements of operations. Equity transactions were translated using historical rates. The period-end exchange rates of 1.00274 and 1.0301 were used to convert the Companys March 31, 2012 and 2011 balance sheets, respectively, and the statements of operations used weighted average rates of 1.0075 and 0.9836 for the years ended March 31, 2012 and 2011, respectively. All amounts in the financial statements and footnotes are presumed to be stated in USD, unless otherwise identified. Foreign currency translation gains or losses as a result of fluctuations in the exchange rates are reflected in the Statement of Operations and Comprehensive Income.
Accounting Method and Fiscal Year
The Companys financial statements are prepared using the accrual method of accounting. The Company has elected a fiscal year ending on March 31.
Fair Value of Financial Instruments
Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair value.
The carrying value of cash, accounts receivable, accounts payable and accrued liabilities approximate their fair value because of the short-term nature of these instruments. Management is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.
Cash and Cash Equivalents
For purposes of the statement of cash flows, cash and cash equivalents include cash and all debt securities with an original maturity of 90 days or less. As of March 31, 2012 and 2011, book balances totaled $1,914,877 and $1,689,386, respectively. These deposits were insured entirely by insurance accounts held by the Companys banks guaranteed by the Province of Alberta, Canada.
Receivables from the sale of goods and services are stated at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts. The allowance is calculated based on past collectability and customer relationships. The Company recorded an allowance for doubtful accounts of $65,110 and $19,524 as of March 31, 2012 and 2011, respectively.
In accordance with ARB No. 43 Inventory Pricing, the Companys inventory is valued at the lower of cost (the purchase price, including additional fees) or market based on using the entire value of inventory. Inventories are determined based on the first-in first-out (FIFO) basis. Inventory consists of raw materials, finished goods held for sale and work in progress. As of March 31 inventory consisted of the following:
The Company records sales when a firm sales agreement is in place, delivery has occurred or services have been rendered, and collectability of the fixed or determinable sales price is reasonably assured. If customer acceptance of products is not assured, the Company records sales only upon formal customer acceptance.
The Company classifies expenses for advertising as general and administrative expenses. The Company incurred advertising costs of $29,210 and $14,793 during the years ended March 31, 2012 and 2011, respectively.
The Company follows the provisions of ASC 718, Share-Based Payment. which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. The Company uses the Black-Scholes pricing model for determining the fair value of stock based compensation.
The Parent is subject to US income taxes on a stand-alone basis. The Parent and its Subsidiary file separate stand-alone tax returns in each jurisdiction in which they operate. The Subsidiary is a corporation operating in Canada and is subject to Canadian income taxes on its stand-alone taxable income. The effective rates of income tax are 27.6% and 29.7 percent for the years ended March 31, 2012 and 2011, respectively.
Research and Development
All costs associated with research and development are expensed when incurred. Costs incurred for research and development were $164,400 and $107,900 for the years ended March 31, 2012 and 2011 respectively.
Shipping and Handling Fees and Costs
The Company records all amounts billed to customers related to shipping and handling fees as revenue. The Company classifies expenses for shipping and handling costs as cost of goods sold. The Company incurred shipping and handling costs of $189,611 and $107,358 during the years ended March 31, 2012 and 2011, respectively.
Comprehensive income includes net income as currently reported by the Company adjusted for other comprehensive items. Other comprehensive items for the Company consist of foreign currency translation gains and losses and unrealized holding gains and losses on available for sale securities.
Recent Accounting Pronouncements
The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Companys financial position, results of operations or cash flows.
The entire disclosure for all significant accounting policies of the reporting entity.
Reference 1: http://www.xbrl.org/2003/role/presentationRef