Essays /

Accounting Case Writing Wellness Fitness Ltd Essay

Essay preview

TO: John Clayton

FROM: Controllers

RE: Recommended accounting policies in light of new business plans and lending conditions

ROLE: Accounting controllers hired to assess 2014 financial statements to advise on appropriate accounting policies due to changes in business plans and new lending conditions.

USERS: As Wellness Fitness Limited's (WFL) CEO, you want to maximize net income and shareholders' value. The two external shareholders are users who also want to maximize net income and shareholder value to increase their return. Finally, Morgan Bank is another user who wants to ensure that financial statements comply with IFRS standards and GAAPs. They also want to ensure that the company complies with the current ratio covenant and is financially stable to repay the requested bank loan. The bank is the most critical user because without this sizeable loan, the company would be unable to grow and expand its membership.

CONFLICTS: Management will want to recognize revenue right away and defer expenses to maximize income. This may not comply with IFRS which conflicts with the bank's objectives.

CONSTRAINTS: As a public company and as requested by the bank, annual audited financial statements must be prepared using IFRS standards. To receive the bank loan, the year-end current ratio must not drop below 1.2:1, as stated by the bank's covenant. Ethics is another constraint because users will want to ensure that management is not biased in fulfilling personal goals; financial statements should accurately reflect the business' financial position.


Depreciation on capital assets was not recorded. Under acc...

Read more


000 1 1.2 10 2 2014 2015 250 3 30 31 4 5 5000 accord account accrual accur ad addit adjust advis affect ago alreadi also alter altern amount annual anoth appendix appropri assess asset assum assur audit august avoid away back bad bank bankruptci base begin bias bill bonus book busi buyer cannot capit case cash ceo chang class clayton club collect commiss compani compli concept conclus condit conflict confus constraint consumpt continu contra contra-account control corpor cost could coven credit criteria critic current custom debt decemb decreas defer depend depreci difficult direct dividend drop due earn effect end ensur entir entiti equip equiti estim ethic even exampl exchang exclud exist expand expens extern fall fee fictiti final financi first fiscal fit fix follow fulfil fund futur gaap generat go goal goe good grow guarante gym held high hire home howev ifr ignor impact implic imposs improv includ incom increas incur involvement/control issu john larg largest last legal lend lesser liabil light limit loan low lower ltd make manag match maxim may measur member membership met method month morgan must negat net new non non-cash non-collect non-pay novemb number object occur one open oper option order origin otherwis overst ownership paid pass pay payment perform period person pertain plan polici portion posit possibl predict prematur prepar principl probabl process provid public put quarter rather ratio re realist reason receiv recogn recognit recommend record refer reflect regardless repay request requir result return revenu reward right risk risks/rewards/ownership role salari salesmen satisfi select seller separ servic set sharehold simplifi sinc sizeabl sold stabl standard state statement still subsequ suffici suggest talk therefor three throughout thus transact transfer two unabl uncollect underst understand unearn unfortun unreli use user usual valu want well wfl without would write writeoff written year year-end yoga