Daphne’s Catering Ltd. (DCL) is a catering service that services customers in the Durham region as well as the eastern part of Metro Toronto. DCL is operated out of Ajax where their kitchen is located, as well as a banquet hall where customers are able to book functions as well as have the catering services. Joe Insalacco recently has shown an interest in purchasing DLC from its current owner/founder Daphne Flatt and has worked out an arrangement to purchase DCL for $550,000 plus five times net income for the last two fiscal years. We are currently working for Mr. Joe Insalacco, who is looking to purchase DCL’s. Mr. Insalacco does not have a good understanding of how accounting ...view middle of the document...
However, the company statement should follow IFRS, because then the statement would be understood better.
As of the company’s September 30, 2016 year end, it has $160,000 of net income and as of September 30, 2017, the company has $275,000 of net income.
In October 2016 DCL had purchased brochures to help promote the upcoming holiday season, to show customers what services and products, holiday meals, that they would have available and for sale during this busy time of year. Due to bad weather not all of the brochures were able to be sent out to DCL’s clients, leaving 60% of the brochures undelivered, and no longer of use for the company for the next upcoming holiday season, thus having $19,000 reported as prepaid expense. This should be considered an expense because by definition it does not meet the criteria of an asset. The unused brochures do not hold any future benefit for the company for the brochures were printed for 2016 Christmas, thus it won’t be useful in the future years. DCL did not have control over the distribution of the brochures as the weather was out of their control on distribution day. The brochures are measureable, because the value of the left over brochures are known, which is $19,000. Next, it was a result of pass transaction for the company needs to print the brochures. By expensing the left over brochures would ultimately bring expenses up, and in return bring down the net income of the company. Thus, the selling price of the share would decrease, meeting with our client’s objective.