In the image attached, a balance sheet of company is provided. Suppose mr . R wants to acquire this business and he believes that the business is worth $550 000. With reference to the different measurement's methods in accounting, advise on the appropriateness of this assessment. Demonstrates a thorough understanding and knowledge of how the worth of a business is determined and explain the measurement basis that can result he will need to provide. $ Amount50,000250,000AssetsCashAccounts receivableInventoryBuilding$600,000300,000500,000Less:Accumulateddepreciation$100,000Goodwill300,000Total Assets| 1,400,000Liabilities70,00030,000800,000900,000Accounts payableIncome tax payableBank loanTotal liabilitiesA review of the business operations shows that building was bought 4 years ago and is reported atcarrying amount of $500,000, the current market value of the building is $1,000,000. Inspection ofinventory reveals that 10% of the inventory is obsolete, for which there is limited demand. Further12% of the accounts receivable is overdue by more than 120 days. The accounts receivable andinventory are carried at their gross amount and cost value respectively on the financial statements.A review of Income statement reveals that business has not provided for any bad debt expense andupward prevision of inventory.

The Balance Sheet of a compnay has given: Required Calculate the Value of Business.

Answered: $ Amount 50,000 250,000 300,000 500,000…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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In the image attached, a balance sheet of company is provided. Suppose mr . R wants to acquire this business and he believes that the business is worth $550 000. With reference to the different measurement's methods in accounting, advise on the appropriateness of this assessment.

Demonstrates a thorough understanding and knowledge of how the worth of a business is determined and explain the measurement basis that can result he will need to provide.

$ Amount
50,000
250,000
Assets
Cash
Accounts receivable
Inventory
Building
$600,000
300,000
500,000
Less:
Accumulated
depreciation
$100,000
Goodwill
300,000
Total Assets
| 1,400,000
Liabilities
70,000
30,000
800,000
900,000
Accounts payable
Income tax payable
Bank loan
Total liabilities
A review of the business operations shows that building was bought 4 years ago and is reported at
carrying amount of $500,000, the current market value of the building is $1,000,000. Inspection of
inventory reveals that 10% of the inventory is obsolete, for which there is limited demand. Further
12% of the accounts receivable is overdue by more than 120 days. The accounts receivable and
inventory are carried at their gross amount and cost value respectively on the financial statements.
A review of Income statement reveals that business has not provided for any bad debt expense and
upward prevision of inventory.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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