Prepare an adjusted set of financial statements if necessary

Assignment Help Accounting Basics

Reference no: EM131975536

Problem

Shabangu Company was organised 15 months ago as a management consulting company. At that time, the owners invested a total of R50 000 cash in exchange for shares. Shabangu purchased equipment for R35 000 cash and supplies to be used in the business.

The equipment is expected to last seven years with no salvage value. Supplies are purchased on account and paid for in the month after the purchase. Shabangu normally has about R1 000 of supplies on hand.

Its client base has increased so dramatically that the CFO has approached an investor to provide additional cash for expansion.

The Statement of Financial Position and Statement of Comprehensive Income for the first year of business are as follows:

Assets		Liabilities and Equity
Cash	R10 100	Accounts payable	R2 300
Accounts receivable	R1 200	Share capital	R50 000
Supplies	R16 500	Accumulated profit	R10 500
Equipment		R35 000
Total	R62 800	Total	R62 800

Shabangu Company
Statement of Comprehensive Income
For the year ending 31 December 2015
Revenue R82 500
Wages and salaries R60 000
Utilities R12 000
Net income R10 500

Required: The investor has asked you to look at these financial statements and give an opinion about Shabangu's future profitability.

Are the statements prepared in accordance with IFRS/GAAP principles? Why/why not?

Prepare an adjusted set of financial statements if necessary.

Based on these two statements, what would you advise the investor?

What additional information do you need to give an educated opinion?

Reference no: EM131975536

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