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Present your answer in the following three sections. Overview Highlight all the issues, including but not limited to the followings: Choices of accounting rules, i.e.

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Present your answer in the following three sections.
Overview
Highlight all the issues, including but not limited to the followings:
Choices of accounting rules, i.e. IFRS and ASPE
Any issues in financing reporting. Issues of GAAP and non-GAAP measurement
Restraints, hurdles, predicaments and risks in the continuing operations
Ability to achieve the objectives, aspirations and future expansions of the entity
Ability and potential deficiency, if any, in dealing with competition and changes in
the business environment and technology
Status on revenue generating, collections, cash flows, AR, bad debts.
Issue, if any, in maintaining and improving gross margin
Issue, if any, to streamline operating expenses
Any issues in recording and valuation of inventory, investment and other non-current assets
Ability to obtain debt financing and/or equity financing
Ability and potential deficiency, if any, in discharging current and non-current obligations
Analysis:
Analyze the issues you have raised in the Overview section. This is to analyze and assess
the above issues in order to achieve or prioritize the entity's objectives and to resolve the
entity's predicaments.
Conclusion and recommendation
Based on the above analysis you have performed in the Analysis section, which option or
options would you recommend to the entity and provide your reasoning. If applicable,
provide an action plan in the timeline of immediate, near term and long term.
Iskra Vremec and Colin McFee are experienced scuba divers who have spent many years in the salvage business. A few years ago, they decided to start their own company to recover damaged and sunken vessels and their cargoes off the east coast of Canada. They incorporated Atlantic Explorations Limited (AEL) on January 1, 2011. Iskra (president) and Colin (vice-president) each own 30% of AEL's shares. The remaining 40% of the shares were purchased by a group of 10 investors who contributed $50,000 each so that AEL could acquire the necessary equipment and cover other start-up costs. AEL carries on two types of activities. The first is a commercial salvage operation. The second is treasure hunting. To date, commercial salvage operations have generated all of AEL's revenues. The demand for these services is strong, and there are few competitors due to the unpredictable nature of the business and the long hours. Colin manages the commercial salvage operations. Customers pay in three instalments, including an upfront fee, a fee payable approximately midway through the contract, and a fee at the end once the items in question have been salvaged (found and brought to land). If the item is never found or AEL cannot bring the item to the surface and to land, then the final payment is not made. Iskra spends most of her time locating and recovering underwater artefacts and, where possible, sunken treasure. Her research shows that numerous vessels carrying gold, silver, and other valuables to the "Old World were wrecked off the shores of Nova Scotia. AEL has permits to investigate three target areas. As compensation for the permits, AEL agrees to remit 1% of the fair value of any treasure found. These funds are to be invested in the local economy by AEL (subject to government approval). The company also pays an upfront fee that allows it to search a given area. There has been a discovery in the first of these target areas. It is now Nov 30, 2011. AEL has engaged your auditing firm to provide advice on the accounting for the on-going operations and the discovery that AEL has just made. You (as audit manager) and Alex Green, the partner assigned to the engagement, met with Colin and Iskra (See exhibit 1 and 2). During your meeting, Iskra said that she believes that finding treasure is like winning a lottery. If subsequent discoveries proves to be as substantial as the results from the first targeted area, AEL will require additional financing of $1.5 million to acquire the equipment and on-shore laboratory. The bank said that it is not willing to advance further funds. However, Iskra and Colin know of other individuals who are interested in investing in AEL. AEL has a December 31 year end. Required: Draft a memo for auditor Alex Green analyzing all financial reporting issues and providing recommendations.1 - CICA and AICPA adapted 2

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