Sunrise Solar Inc. (SSI) is a medium-size company that is developing solar energy systems for private residences and small businesses. It is privately owned, with the majority of the shares held by the company's president, Shu Mingfei. Started up two years ago, to date, it is mostly involved in research and development, but this year it completed its first customer sales and installation. Shu has engaged your firm to do the current year's audit because she plans to obtain $20 million in debt financing from outside investors to allow further commercialization of the SSI systems. You are now reviewing SSI's preliminary general ledger trial balance in order to begin preparing the audit planning. The following is a summary of the accounts that appear in this trial balance as at year-end:
Cash $101,209
Accounts receivable 85,019
Allowance for bad debts (15,000)
Inventory, finished goods 900,550
Inventory, work in process 44,666
Inventory, raw material 67,890
Deferred development costs 34,445
Property, plant and equipment 3,700,990
Accumulated amortization, PPE (901,108)
Patents, at costs 1,010,000
Accounts payable (198,009)
Warranty provision (30,000)
Shareholder loan, non-interest bearing (11,000,000)
Share capital, common shares (1,000)
Retained earnings 1,364,767
Revenue (812,202)
Cost of goods sold 666,502
General and administration expenses 1,002,500
Research and development expenses 3,990,000
Other expenses 89,990
REQUIRED:
c.) Discuss users, qualitative characteristics. Apply a range of at least three quantitative calculations and make a recommendation for planning materiality consistent with your qualitative discussion and key users.
Ans. Qualitative characteristics of Sunrise Solar Inc (SSI) trial balance are as follows:
(i) All the accounts are presented in a way which provides meaningful information about the financial performance as well as the financial position of the company.
(ii) The trial balance reflects the balances which are relevant for the purpose of audit.
(iii) The company has maintained separate accounts for bad-debts, depreciation and amortization and not deducted the same from the principal account.
At least three quantitative calculations to make a recommendation for planning materiality consistent with the qualitative discussion and key users are as follows:
(i) High monetary value of inventory being piled up. Therefore, stock taking must be done carefully.
(ii) High level of Research & development expenditure causing negative profit. Therefore, it should be checked whether such expenses meets recognition criteria.
(iii) Taking Loan confirmation from all the parties who has given loan to the company.
Sunrise Solar Inc. (SSI) is a medium-size company that is developing solar energy systems for private...
Sunrise Solar Inc. (SSI) is a medium-size company that is developing solar energy systems for private residences and small businesses. It is privately owned, with the majority of the shares held by the company's president, Shu Mingfei. Started up two years ago, to date, it is mostly involved in research and development, but this year it completed its first customer sales and installation. Shu has engaged your firm to do the current year's audit because she plans to obtain $20...
NOTE::: THE NUMBERS DONT MATCH< BUT THIS IS WHAT IS PROVIDED IN TEXTBOOOK Sunrise Solar Inc. (SSI) is a medium-size company that is developing solar energy systems for private residences and small businesses. It is privately owned, with the majority of the shares held by the company's president, Shu Mingfei. Started up two years ago, to date, it is mostly involved in research and development, but this year it completed its first customer sales and installation. Shu has engaged your...