Question

Louis Davis is a dentist with a practice in a small town in Manitoba. Recently, he separated from his wife and they are currently negotiating how they will divide their assets when their divorce proceedings conclude. As part of the process, Louis’ lawyer has asked for a balance sheet for his dental practice to help value it. Louis has asked you to prepare the balance sheet. You gather the following information from Louis:
i. Louis purchased all his equipment eight years ago when he started his practice.
The total cost of all the equipment was $100,000. He expects to replace all the equipment in four years.
ii. He purchased furniture and decorations for his office four years ago for $22,000. He expects the furniture and decorations to last for about ten years.
iii. Patients owe Louis $19,000.
iv. Louis owes suppliers $12,000 for goods and services he purchased for his practice.
v. The practice has $4,750 in its bank account.
vi. Louis owes his staff $2,500. This amount will be paid on the next payday, in two weeks.
vii. Louis has a bank loan outstanding for $10,000.
viii. Louis keeps supplies he needs in his practice. The cost of the supplies he currently has on hand is $750.

Required:
a. Use the information provided to prepare a balance sheet for Louis' dental practice.
Provide an explanation for why you classified each item as you did (asset, liability, equity). The difference between assets and liabilities will give you Louis' equity.
b. As a judge in this case, how would you use the balance sheet in deciding how to value Louis' practice?
c. What additional information would you as judge might want before deciding how to value Louis' practice?



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  • CreatedFebruary 26, 2015
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