Another benefit of having the personal balance sheet is that should you decide to open - 12244

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1. Another benefit of having the personal balance sheet is that should you decide to open your own business, you have a good reference point to start with while creating your business plan. Many financial institutions look at those balance sheets. What do you think are some things they are looking for on the balance sheets?

 

 

2. The ultimate goal when looking at your long-term or noncurrent assets is to maximize the resources you have available to you. On a project for a consulting job, I was tasked with looking at the long-term (noncurrent) assets and attempting to determine the viability of these assets. On their books they had some long-term investments and property that was no longer of value to them or was not being used to the fullest. The determination was to either build on a piece of property that they did not realize they still had or to sell the property. The long-term investment was kept because though the market was at a current low, selling the asset was not a feasible option. The loss would have been too great if the investment was sold. When looking at your long-term or noncurrent assets, as a manager...if a President told you to sell off all land except what they were currently using as headquarters, what would be your response? You have leeway, here as the boss is not going to fire you for an honest answer.

 

3. What are some distinct or key features of both current and noncurrent assets?

 

 

4. If a company is going bankrupt the first financial statement they look at is the balance sheet. They decide they want to start selling off their assets. What are some ways to sell off specific assets such as accounts receivables (look at all of the assets not just receivables)? The key to this is that they are attempting to put some money in the coffers!! Now tell me, if you were to look at your own assets what would you think would provide or generate cash for you to continue to survive?

 

5. When looking at accounting estimates auditors often look at other items to see if they are manipulating estimates for other purposes. One of the items auditors look for are new bonus compensation programs. When a new bonus plan is implemented which accounting estimates do you believe management may tinker with in order to meet their bonus goals? What is the problem with making the change in the accounting estimate you chose?

 

6. You mentioned depreciation. This is one other thing to look at on the balance sheet for valuations. The balance sheet does not reflect the market price of fixed assets and it does not add great value on the books as it is depreciated. When the long-term asset becomes significant is when it is sold above the book value of the asset. Working at a manufacturing company, at one point, it was my job to dispose of approximately $3,000,000 of assets or determine whether we still owned these assets. Locating those assets, finding out whether they were sold or still in house was very important. If an asset was sold, we had to track down who the asset was sold to and write that on our books as a gain, thus showing additional income outside of the regular operating income that we had on the books. How does this additional income affect the income statement? How can the depreciation make managers look good based on what I did to release fixed assets from the books?

 

7. Insurance companies, pension plans, etc. rely on actuaries to estimate the length of time they expect you to live based on your health, smoking, etc. Really morbid, but they do a fairly accurate job of estimating. When looking at a 401(k) plan at the office we always had to make sure we booked the numbers similar to a warranty. It is a liability account that states, in its own way, what we believe we will have to pay out. How do you think this affects financial statements?

 

8. INVENTORY!!! Inventory is one of the primary ways that managers cheat with estimates. When there is a period of inflation organizations really look at how they value their inventory. When the market is stable and prices do not change then you cannot tell the difference between the three estimates for valuing inventory. There are three methods: LIFO (last in - first out), FIFO (First In First Out) and Weighted Average of Inventory. What is illegal is to use one inventory valuation method for taxes and another valuation method for the income statements. Why is this a big deal? Briefly: FIFO produces the lowest valuation for the cost of goods sold because when you use FIFO you are selling the first product you purchased which is probably cheaper than what your currently purchased inventory will be, thus making your profits look higher than they may actually be in the market. LIFO produces the opposite thus making your profit margin seem lower and your tax bill is lower. Personally, weighted average is useless because it does not accurately represent the costs related to your inventory. Now that I have briefed you on inventory, if your company has inventory, which method do they use and why? If you are unsure or your company has no inventory, research a company and tell me what method they use.

 

Solution Description

1. Another benefit of having the personal balance sheet is that should you decide to open your own business, you have a good reference point to start with while creating your business plan. Many financial institutions look at those balance sheets. What do you think are some things they are looking for on the balance sheets?

A personal balance sheet helps a person calculate his net worth. It is a good starting point for a person to ascertain his net worth if the person is to start his own business. The personal balance sheet will help determine the assets a person has available that he can invest in business. Using personal balance sheet, a person will be able to ascertain the net assets by subtracting the liabilities from the assets. Banks are looking exactly for that. They need to see the net worth of a person. They need to see the worth of assets available after his debts such as credit card bills, mortgages, etc are deducted.

 

2. The ultimate goal when looking at your long-term or noncurrent assets is to maximize the resources you have available to you. On a project for a consulting job, I was tasked with looking at the long-term (noncurrent) assets and attempting to determine the viability of these assets. On their books they had some long-term investments and property that was no longer of value to them or was not being used to the fullest. The determination was to either build on a piece of property that they did not realize they still had or to sell the property. The long-term investment was kept because though the market was at a current low, selling the asset was not a feasible option. The loss would have been too great if the investment was sold. When looking at your long-term or noncurrent assets, as a manager...if a President told you to sell off all land except what they were currently using as headquarters, what would be your response? You have leeway, here as the boss is not going to fire you for an honest answer.

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