International Auditing Cases 3 INSTRUMENTS OF FINANCIAL REPORTING A company producing photovoltaic modules has fixed assets at 1 Mio and inventories at 800.000 , bank account 200.000 , no liabilities. Production costs are 80 per module. Because of new production technologies and the fact that other competitors are able to produce in countries with low labour costs the market price is 50 per module. a) Please explain the economic effect on the balance sheet; assume 10.000 modules have been produced. In order to present a better financial position the company splits in a production entity and a selling entity. The selling entity has equity of 50 T. The selling entity buys the modules at 140 per module. b) In order to finance new investments the company sends the balance sheet of selling entity to the bank. Would the bank give a loan to the production company? International Auditing Cases 3 INSTRUMENTS OF FINANCIAL REPORTING A company producing photovoltaic modules has fixed assets at 1 Mio and inventories at 800.000 , bank account 200.000 , no liabilities. Production costs are 80 per module. Because of new production technologies and the fact that other competitors are able to produce in countries with low labour costs the market price is 50 per module. a) Please explain the economic effect on the balance sheet; assume 10.000 modules have been produced. In order to present a better financial position the company splits in a production entity and a selling entity. The selling entity has equity of 50 T. The selling entity buys the modules at 140 per module. b) In order to finance new investments the company sends the balance sheet of selling entity to the bank. Would the bank give a loan to the production company