Prepare an adjusted set of financial statements if necessary

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

Questions Cloud

Compute the required rate of return : Compute the required rate of return (Ke). (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Which product line is more profitable for zippyzippy : Which product line is more profitable for ZippyZippy? Compute the gross profit per wheel if managers rely on the ABC unit cost data.

Do you prefer to lease or buy the machine : A firm needs new copy machine. You can purchase a new one for $30000, or you can lease one for three years for a monthly lease payment of $800.

Show the cash flows for the problem : A firm needs to replace its the garage doors at its loading dock area. Two options are available. A Deluxe mode] costs $4500 and has an expected life of 9 years

Prepare an adjusted set of financial statements if necessary : Prepare an adjusted set of financial statements if necessary. Based on these two statements, what would you advise the investor?

What is the times-interest-earned ratio : A firm has net income before interest and taxes of $176,000 and interest expense of $26,200. What is the times-interest-earned ratio?

Demonstrate the calculation process : LEGL300 TAXATION LAW - Demonstrate the calculation process for determining Kevin's tax liability for the year ended 30 June 2017, and explain your treatment

Compute the number of preferred shares that were issued : ACC 206 Assignment - Star Corporation issued both common and preferred stock during 20X6. Compute the number of preferred shares that were issued during 20X6

What will the new earnings per share be : A firm has a market value equal to its book value. Currently, the firm has excess cash of $300 and other assets of $6, 200. Equity is worth $5,000.

User Account

All Pages