MEMO
To: Silverado Investments Limited (SIL)
From:
Date: September 1994
Re: Advice on accounting policies on the investment projects
User and their Objectives:
Silverado Investment Limited (management):
They would like to know the accounting policies effect on their real estate projects and how it would affect the financial statements of the company. The main objective is to have a non-volatile financial statement and to maximize profits about future earning prospect.
Bank:
They would like to see a reliable and audited financial statement in accordance to GAAP. This would allow them to compare and evaluate SIL to see if they claim for addition funding for their project is viable. To make sure that their mortgage claims are good and it is not violating the debt covenants. They will advance 85% payment of the cost.
Securities Commission:
They are the main users because SIL has to submit their audited financial statements for the securities commission to review. If there is misleading or incorrect information presented on their financial statements, SIL might have some covenant problems.
Constraints:
Even though the company is a privately help company, GAAP will be a constraint and Canadian Conglomerate will be require to follow GAAP while preparing the financial statement. The reason behind this is that the bank and securities commission require an audited report and use GAAP as a mean to analyze the company’s management decisions.
Analysis of SIL issues:
Issue #1: Income-producing properties:
• The company should not stop depreciating the building even if it is undervalued
o They should ...