Wallace Inc. Essay

1102 WordsApr 27, 20095 Pages
To: Peter and Samantha Wallace From: Accounting advisor Re: Accounting policies Before recommending any accounting policies to be implemented, there are some underlying assumption and key stakeholders that you must recognize. The prospective buyer is currently your most important stakeholder, as he is interested in purchasing all your shares. He needs to determine whether investing in Wallace would be profitable through analyzing the company’s financial statements. Additionally, since Wallace is wholly owned by the two of you, I assume you would want the highest purchase price. In this way, income maximization is your financial statement objective as it will also appeal to the prospective buyer. An important issue here is that the buyer is requesting GAAP-based financial statements. The first issue that should be taken into consideration is Wallace’s customer case. The company has three significant customers who account for 80% of total revenues ($15M). This may cause problems any time in the future if the company were to lose any of these accounts. A loss of just one customer will have a great negative impact on Wallace’s profitability. This issue could be disclosed in the notes to the financial statements, so prospective buyers are aware of this. It would be important to note that Wallace should focus on diversifying its customer base. This way, it may lead to a more financially sound company, with a better cash prediction. The next issue pertains to the $50,000 worth of inventory that has been sitting in a factory for over a year and currently not being manufactured. If this inventory has become obsolete, it should be written off and not included as an asset in the financial statements. On the other hand, if this inventory is going to be used, there should be a note of this and most importantly, the inventory must be written down to its net realizable
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