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CASE 3 Valuation of Assets David Henhawk owns a small bicycle courier service. He is the sole owner and has chosen to follow the Accounting
CASE 3 Valuation of Assets David Henhawk owns a small bicycle courier service. He is the sole owner and has chosen to follow the Accounting Standards for Private Enterprise for financial reporting, David will be approaching the bank for a loan to support business operations. He asks you, his accountant, to prepare a current balance sheet for him to show the bank regarding his loan application. A friend of David's, who works in the real estate business, has indicated that a building owned by the business would be worth $400 000 if offered for sale on the current market. The building is listed as an asset on the company's books at $250 000, its original cost price. David feels the higher amount should be used on the balance sheet because it better reflects the value of his business and would impress the bank. Questions 1. Under the Accounting Standards for Private Enterprise cost principle, what amount should be shown on the balance sheet for the building? 2. Under the International Financial Reporting Standards fair value principle, what amount should be shown on the balance sheet? 3. Should you follow David's instructions when you prepare the balance sheet? Give reasons for your answer. 4. Would the bank be interested in the current value of the building? Why? 5. What advice would you give David
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