George has sought your advice regarding a business that he intends purchasing. An Extract from the balance sheet of the business shows total assets and liabilities as listed below

A review of the business operations shows that building was bought 4 years ago and is reported at carrying amount $400,000, the current market value of the building is $800,000. Inspection of inventory reveals that 10% of the inventory is obsolete, for which there is limited demand. Further 10% of the accounts receivable is overdue by more than 90 days. The accounts receivable and inventory are carried at their gross amount and cost value respectively on the balance sheet. A review of Income statement reveals that business has not provided for any bad debt expense and downward revision of inventory. As you are an accounting student, you have been asked to advise George on the following issues:

a. Explain to George the form of organisation he can adopt for the business? Briefly discuss the advantages and disadvantages of the form of organisation being suggested. b. George has a very limited understanding of the term Assets. Explain to him how goodwill can be listed as Asset and how this relates to businesses past investing decisions. c. Based on the information provided, George believes the business is worth $400 000. Advise him on the accuracy of his assessment. d. Explain to George how the accounts receivable and inventory should be valued on the balance sheet. If the business was to apply

20,000 200,000 250,000 400,000 $500,000 $100,000 Assets Cash Accounts receivable Inventory Building Less: Accumulated depreciation Goodwill Total Assets Liabilities Accounts payable Income tax payable Bank loan Total liabilities 130,000 1000,000 50,000 25,000 525,000 600,000