Ariya Masoudi

To: Mabel Alright

From: Bookkeeper,
Re:
Overview
Users and Objectives

Mabel As the head of the business, she is the most crucial user of the data. Her
objective is likely to present the financial data, such that the income is high enough for

George to invest. (biased)

George As the main outside shareholder, George is willing to invest in the company. He
believes if the income is above 100,000 there is incentive to invest more funds.

(unbiased)
Bank the least important stakeholder. The only concern of the bank is to receive
interest. To ensure the loans success, the bank made it payable immediately incase

income hits below 20,000. (unbiased)

Bookkeeper concerned about about meeting client needs by creating financial data
tailored for the clients needs. Tasks include creating general ledgers, balance sheets, and
adjust any entry mistakes. (unbiased)

Constraint
The major constraint for this corporation is the fact that it uses IFRS standards. IFRS
standards are not ideal for privately owned businesses. It is amongst the most complex and
rigid format formats for financial statements and it is simply unnecessary for business that
are not public. Therefore, I recommend using ASPE. It is more simple and is generally more
suited for SEI. In addition, there is tax benefits to ASPE.
Conflict/ Ethical Consideration
It might be tempting to create a bias in the financial statements that inflates the income in a
certain statement. Obviously, this is too attracting investors such as George, and satisfy the
bank. However, the problem is that this will have a negative effect on the net income which
will make the company look back in long term.
Primary User and Primary Objective

Ariya Masoudi

George is the primary user of financial statements. This is because he needs SEIs
financial statements for making investment decisions. He has stated that an income
above 100,000 would create incentive for him to invest more in the company. His

main objective is to profit through the companys growth and income

The bank is a secondary user of the financial statement. Their main objective is to
profit from the loan through interest. They will use financial statements to insure the
loan can be paid. If SEIs income is under 20,000 they will take their loan away.

Analysis
1. Revenue Recognition
Issue: The combined sales totaling to 1,500,000 was not recognized under the IFRS
The standards that must be met by IFRS
1

Significant risks and rewards of ownership have been transferred from the seller
to the buyer. There only risk is some computers might get damaged before delivery.

There needs to be a return policy for such cases. (this criterion must be met)
2 The seller has no involvement or control over the goods sold. After customer
receives their computer, SEI is no longer involved. (these criterion is met)
3 Collection of payment is probable. The products are paid for prior to being received
by the customers. (This criterion is met)
4 The amount of revenue can be reasonably measured. The services have discrete
prices, and the payments are insured. (this criterion is met)
5 Costs of earning the revenue can be reasonably measured. There is no information
regarding these criteria. (this criterion is not met)
Conclusion: The revenue can not be part of the balance sheet as of now. SEI does not meet
all the IFRS criteria for revenue recognition. They will need to establish a return/
guarantee for sold damaged goods and also provide financial statements in regards of cost
of earning. Which includes elements such as the cost of their inventory. SEI must either
address these issues or switch to ASPE.
2. Asset Recognition- CompWiz Computers
Are the seized goods from CompWiz eligible to be presented under assets
We can conclude based on these criteria:
1. Result of past transaction CompWiz computers was recently acquired by SEI.

Ariya Masoudi
2. Future economic benefit: SEI could have profited by selling that inventory at higher cost
than they bought the computers.
3. Future benefits can measure: The margin was not issued in the financial statement
directly, however the total amount was.
4. Control: SEI lost control of the assets as they were sized
Conclusion: The assets can not be written of. Although it is possible to recover them, there is a
possibility that they can not be recovered. Therefore, they can not be included.
Big Picture Take-Away
It was a wise decision to hire a professional to review and recreate the necessary financial reports
of the company, as there were numerous typos in the reports. Such typos could be very
troublesome. Which is why a third party audit is something that can be useful for the company to
ensure that all guidelines are being followed. In addition, I would like to note that the income of
the company was inflated. Although this could attract more investment, it could also have
negative impacts on net income.

Assumption: all undeclared dates where recorded as March 31

Initial investment

Ariya Masoudi
Date
March 31, 2015

Account name
Cash
Common
shares
Bank loan

Debit($)
110,000

Credit($)
20,000

15,000

Journal Entries ( with the assumption that the company has been
operating for a year)
Date
Account name
Debit($)
Credit($)
June 31, 2015
Equipment
20,000
Accounts
20,000
Payable
August 1, 2015
Prepaid
15,000
Insurance
Cash
15,000
March 1, 2016
Retained
50,000
Earnings
Bonus Payable
50,000
March 1, 2016
Bonus Payable 50,000
Dividends
50,000
Payable
March 31, 2016
Rent Expenses 27,500
March 31, 2016

March 31, 2016

March 31, 2016

March 31, 2016

March 31, 2016

March 31, 2016

Cash
Rent Expense
Accounts
Payable
Receivable
from
Shareholder
Other Expense
Cash
Unearned
Revenue
Inventory
Cash
Shipping
Expense
Cash
Accounts
Receivable

27,500
2,500
2,500
1,500
1,500
5,000
5,000
5,000
5,000
500
500
1,500

Ariya Masoudi
Date
June 31, 2015

August 1, 2015

March 1, 2016

March 1, 2016

March 31, 2016

March 31, 2016

March 31, 2016

March 31, 2016

Account name
Equipment
Accounts
Payable
Prepaid
Insurance
Cash
Retained
Earnings
Bonus Payable
Bonus Payable
Dividends
Payable
Rent Expenses
Cash
Rent Expense
Accounts
Payable
Receivable
from
Shareholder
Other Expense
Cash
Unearned
Revenue
Inventory

Closing Entries
Date
Account Name
March 31, 2016
Income Summary
March31, 2016
Amortization
Expense
March31, 2016
Insurance
Expense
March31, 2016
Venue Expense
March31, 2016
Catering Expense
March31, 2016
Rent Expense
March31, 2016
Shipping Expense

Debit($)
20,000

Credit($)
20,000

15,000
15,000
50,000
50,000
50,000
50,000
27,500
27,500
2,500
2,500
1,500
1,500
5,000
5,000
1,500

Debit($)
54,890

Credit($)
12,390
5,000
5,000
2,000
30,000
500

Ariya Masoudi

Entry Adjustments
Date
Account Name
March 31, 2016
Depreciation
Inventory
March 31, 2016
DR Insurance
Expense
Prepaid
Insurance
March 31, 2016
Depreciation of
old equipment
Equipment
March 31, 2016
Other expense
Cash

Debit($)
1,500

1,500
5,000
5,000
10,890
10,890
1,500
1,500

Appendix
Shift and Enter Inc.
Balance Sheet
March 31, 2016
Assets
Current Assets
Cash
Accounts receivable
Accounts Receivable From
Shareholder
Inventory
Non-current assets
Prepaid expenses

Credit($)

57,500
15,480
1,500
403,494
49,000

Ariya Masoudi
Prepaid insurance
Other prepaid expenses
Total current and noncurrent assets
Fixed Assets
Equipment
Less: accumulated
amortization
Total fixed assets
Total assets

10,000
145,526
682,500
128,90
0
22,390
106,510
789,010

Liabilities
Accounts payable
Bank loan
Dividends payable
Unearned Revenue
Owners equity
Common shares
Retained earnings
Total Liabilities and
Owners equity

678,900
10,000
50,000
5,000
100,000
-54,890
789,010