Identify accounting issues (GAAP/IFRS compliance issues)

Case study 1 of financial accounting. Everything attach in the file.


On successful completion of this assignment, students should be able to:

Develop an ability to identify and assume an assigned role.

Identify and rank the importance of explicit issues.

Illustrate the importance of hidden (undirected) issues that arise from a detailed analysis.

Identify accounting issues (GAAP/IFRS compliance issues), assess their implications, generate alternatives, and provide recommendations within the bounds of GAAP/IFRS to meet the client’s needs.

Examine how accounting standards impact financial measures (ratios, covenants, etc.).

Prepare a coherent report and integrated analysis that meets specific user needs

Brief Description

To be used in class as class activities. Students are required to prepare for the cases before class time. Students may be allowed to form groups to present their answers.

Submission Instructions

In order to complete your case analysis successfully, you should consider:

identifying the role you are playing,

assessing the financial reporting landscape considering the user needs, constraints, and business environment,

identifying the issues,

analyzing the issues (qualitatively and quantitatively), and

providing a recommendation for each issue identified in the case.

You are required to prepare for the case before the class and bring any documents that will support your analysis. An average grade will come from you answering questions with basic coverage and accuracy, showing all your preparation. Additional points come from including greater detail, astute and informed commentary where appropriate, and connections to readings and other content.

Investment Decisions for Big Spenders Inc.


You are an Analyst for the professional service firm, BUSI 1043 LLP. Your firm specializes in providing a wide variety of internal business solutions for different clients. It is your first day on the job and a Manager in the Consulting area asks you for some help with an investment decision for one of your large clients, Big Spenders Inc. Ready to make an impression on your first day, you start reading the background information provided by the Manager

Additional Information

Big Spenders Inc. has been working on diversifying its portfolio of investments and requires accounting advice for a decision between two car cleaning and detailing companies. Your responsibility is to perform a comparative analysis of the profitability of two potential equity investments. Your engagement manager on this job has given you a brief background on the operations of the two companies:

Auto Wash Bot Ltd. (AWBL) has recently completed the research and development of a new touch screen app for all mobile devices. This new technology is both more user friendly than the current technology on the market. Auto Wash Bot Ltd has just signed a major contract to provide the Auto Wash Bot terminal to a major producer of mobile devices. The founder of the business would like to sell a 50% interest in the business for $100,000 in order to finance further expansion of operations.

Popeye’s Muscle Wash Ltd (PMWL) is a self-service, coin-operated car wash located in a busy residential area. The company provides all of the services of a typical car wash, including soap, wax, vacuuming as well as pressure washing. PMWL has been long established and enjoys the loyalty and repeat business of many local residents. The current owner is getting up in age and would like to sell 100% ownership interest in the business for $100,000 to pursue retirement. The current year’s income statement is consistent with prior years.

One of the first tasks in the analysis of the potential equity acquisition is an assessment of each company’s current and future profitability. Your manager has provided you with copies of each company’s income statement (see below). Next, you are to calculate the expected return on the investment for each company. You have been asked to discuss any other issues that you believe are relevant to the investment decision.

The Consulting Manager would like you to prepare the report and have it on his desk for review first thing tomorrow morning. Once reviewed, this report will be submitted to Big Spenders Inc. in order to support their decision.

Auto Wash Bot Ltd.
Revenue $375,000
Cost of Goods Sold 86,250
Gross Profit 288,750
Other Expenses
Advertising 35,400
Office Expense 22,750
Research 195,000
Wages and Salaries 40,000
Total Other Expenses 293,150
Income Before Taxes (4,400)
Income Tax
Net Income $(4,400)
Popeye’s Muscle Wash Ltd
Income Statement
For the Year Ended December 31, 2015
Revenue $375,000
Cost of Goods Sold 163,125
Gross Profit 211,875
Other Expenses
Advertising 5,200
Office Expense 17,400
Repairs and Maintenance 85,000
Wages and Salaries 50,000
Total Other Expenses 157,600
Income Before Taxes 54,275
Income Tax 8,413
Net Income $45,862

*Tax rate of 15.5% used.

Note to students: Issues are hidden within the case. It is your responsibility to read the case facts and identify the critical issues required for discussion and analysis.

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