that the firm co
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Based on the findings, give recommendations to Child Care so that the firm could be financially independent and contribute to the society.
Transcribed Image Text:Task 5: Based on the findings, give recommendations
to Child Care so that the firm could be financially
independent and contribute to the society?
please help me i need the answer ..
Scenario:
Child Care is a local non-profit organization solely managed by Mr. Mohammed. Before 10
years, his family contributed property and savings to establish this non-profit organization
which aims to provide free education, food, and shelter to orphans in the country. The source
of income is from donations and charities which Mohammed can generate from his family
members. Mohammed's educational qualification is an engineering graduate and therefore he
has no knowledge of managing a non-profit organization. Mohammed's lack of accounting
and finance knowledge has created liquidity issues to the organization. In addition, there is no
proper checks and balances done on the accounts since its inception. The employee base
consists of Mr. Gopi, Ms. Sara, and Mr. Ahmed. Gopi looks for housekeeping, cleaning, and
cooking for the shelter home. Sara is the cashier of the firm. Sara manages financing of the
non-profit and Ahmed looks for the administrative aspect of the firm. All these three
employees are full time employed but are underpaid as compared to the private sector.
How
years, the number of orphans has increased in the organization and
therefore there is negative cash balances for few years.
The details of the closing balances of the net assets are as follows: (all figures in Omani rial)
2018
2019
2020
Unrestricted
(44,000)
(67,000)
(91,000)
Temporary restricted
(30,000)
(57,000)
(67,000)
Permanently restricted
100,000
100,000
100,000
There is an immediate need to recruit additional three full time employees, out of which, two
employees are required in the housekeeping whereas one employee is required in the
administration of the non-profit. Mohammed is facing criticism from his existing staff, which
are complaining of lower salary and lengthy working hours. Mohammed is also facing tough
challenge in generating funds from charities and donations as increased expenses of the non-
profit firm is worrying him. Major donors are also not happy with the type of services
provided to the key stakeholder (orphans) of the non-profit firm. Neighbouring society
houses have appreciated the charity work done by Child Care. Thuriya, a local bank manager
has approached Mohammed and is willing to provide a bank loan for covering negative cash
balances. Thuriya also recommends Mohammed to cut down unnecessary expenses like
leisure, stationery, and travel costs. However, Mohammed will have to keep the noncurrent
assets of Child Care as mortgage to avail the bank loan.
Ahmed is of the opinion that the non-profit firm should expand its management board and
include major donors as trustee. This will increase accountability and transparency in the
non-profit organization. However, Sara is totally against this option, as new trustees will
create additional confusion and operational challenges to existing management (Mohammed)
and to the non-profit firm. Gopi is of the opinion to close this non-profit firm as increased
negative cash balances will create serious liquidity issues in near future. Mohammed's
ultimate objective is to generate profits from the non-profit fim so that he can use the
additional income for other business needs.
Mohammed has approached you and asked some generic and specific questions which could
help fix the mentioned issues.
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